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  • Anesthetist Scheduling

    Stephanie J . Zvolenski, MBA
    Financial Manager, ABC

    News broke recently of the United States Congress decision to freeze Medicare payments for 2011 and not move to enforce a previously proposed approximately twenty-six percent (26%) cut in the national anesthesia conversion factor. Although this makes for a little brighter turn of the New Year, practices across the country are still faced with daily challenges of maintaining a healthy bottom line with more and more Americans still uninsured and/or under- insured. The costs of providing quality care still exist, yet the payments continue to decrease. Expenses in medical practices seem sometimes to be best represented by a freshly filled helium balloon at a child’s birthday party, “Up, Up, and Away....until they are out of sight”....unless the party host finds creative ways to stabilize them.

    Specifically, many anesthesia practices across the country are struggling with rising costs of personnel management, scheduling to meet the demands of the surgical and facility requirements without breaking the practice’s bank with overtime expenses and lack of appropriate utilization. Some practices have found that it is not only cost beneficial but it many cases absolutely necessary to move away from the traditional 7:00 a.m. to 3:00 p.m. shifts for their anesthetists. Practices are becoming more and more creative in scheduling management to partner with their surgeons and facility administration yet keeping their finances stabilized. Some ideas and examples that may be helpful for your practice are outlined below.

    Offer daily shift flexibility to the anesthetists in order to achieve coverage for late afternoon add-on cases without paying overtime rates. For example, a number of the practices’ anesthetists are working a combination of twelve (12) hour shifts and eight hour shifts on rotation. This actually is attractive to the anesthetists as they achieve an extra day off each week. This modification in schedule provides coverage for the late day cases without creating any expensive overtime for the practice and also eliminates the anesthetist expectation of leaving every day at 3:00 p.m.

    In conjunction with an analysis of case start times in your operating room, there may be an opportunity to stagger daily start times of the anesthetists depending upon the surgeon and case load that day, so even reaching eight hours of work on a particular day may be the result of a 7:30 a.m. to 4:00 p.m. schedule rather than 7:00 am start time. Also, practices should schedule a one-half hour unpaid lunch break into the daily shift, so that the schedule is actually 7:00 a.m. to 3:30 p.m. rather than 3:00 p.m. with the lunch break included.

    Another idea is to analyze your anesthetist compensation package in total. It is beneficial to the practice and the facility to compensate anesthetists with a base pay and incentive bonus for anesthetists’ contributions and alignments to practice, department and facility objectives and goals. For example, OR efficiency, minimal case delays and day of surgery cancellations and patient and surgeon satisfaction are all metrics to consider when building a comprehensive evaluation and incentive-based compensation structure for your anesthetists. By incentivizing the anesthetists to work on efficiency and productivity goals, they have some control over managing their schedule as well as additional compensation opportunity.

    Remember that the federal labor laws define overtime as hours worked greater than forty (40) in a given week. Some practices have mistakenly been paying an overtime rate for hours worked greater than eight in a day. Frequently there is at least one day each week that is lighter in the operating room schedule and personnel can take some of their time back from other days that week in which they may have worked later.

    You may want to be careful with shift differential compensation as well. It can be beneficial if the practice offers increased compensation in an effort to entice personnel to volunteer for later shifts on a consistent basis or as a regular schedule; however, you may find anesthetists working the day shift becoming slightly less motivated to gain efficiencies if there are greater dollars to be earned by working later in the day.

    Finally, in all cases it is necessary to evaluate your entire staffing plan and perform a comparative analysis of the cost associated with the hiring of additional part-time or full-time anesthetists, per diem labor as well as overtime to your current staff. Not every practice is the same and no one method will work for all. As we learned in seventh grade algebra, the optimal point is where the x crosses the y axis...this point will be different for every practice.

    The ultimate goal is an appropriate balance between practice vitality, recruitment and retention of quality providers, surgeon and facility satisfaction and above all the highest quality of patient care.


    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 724-952-1361or at Stephanie.Zvolenski@AnesthesiaLLC.com.

  • Business Consolidations: Lessons Learned During The Acquisition of Associated Anesthesiologists, Inc., by Anesthesia Business Consultants, LLC

    K .D. Lowe, MHSA
    Senior Vice President, Western Region, ABC

    Introduction

    “Action and reaction, ebb and flow, trial and error, change — this is the rhythm of living. Out of our over-confidence, fear; out of our fear, clearer vision, fresh hope. And out of hope, progress.” – James Levine

    Sometimes we wonder if there is truly a rhythm to life, but one thing is more certainly true, and that is that change happens. When it does happen, the piece of change called ‘transition’ can be the hardest part. In business, the transition period accompanying mergers and acqui- sitions often provides more of a cacoph- ony than a melodious and smooth tune; harder to follow the notes and definitely difficult to put to an instrument and play. Those who have gone through a merger or acquisition may recognize some of the learning points that follow. We will dis- cuss here communication, cultural blend- ing, fear of the unknown, technology im- pact, human resource policy and organi- zational approach. This is a smattering of the lessons learned during the acquisition of Associated Anesthesiologists, Inc., by Anesthesia Business Consultants, LLC, undertaken late in 2007.

    Communication

    In the beginning

    “The void created by the failure to communicate is soon filled with poison, drivel and misrepresentation.” – C. Northcote Parkinson

    Tell as much as you can, to as many as you can, as soon as you can. During a transition you cannot possibly over- communicate. Define what is changing and what is staying the same, why is this change necessary and what is to be gained. This is key to directing energy and angst from the fear of change to what really is changing and to provide a sense of security. We humans are all creatures of habit and tend to become anxious and fearful when too much changes too quickly.

    Individuals take in and process information at differing levels. It’s important to remember individuals respond to the change and make their peace with it based on their ability to let go of the old status quo and accept the new. Keep a close tab on the pulse of the membership and quickly respond to any underlying current of uncertainty or anger. Left unaddressed, anger and discord will breed among the membership and spread like wildfire. Individuals aren’t necessarily looking for a quick fix, more they are seeking acknowledgement of their feelings and to be heard. These feelings and reactions are normal as individuals deal with the impact of the change on their individual circumstance.

    During Change

    “It’s not so much that we’re afraid of change or so in love with the old ways, but it’s that place in between that we fear...It’s like being between trapezes. It’s Linus when his blanket is in the dryer. There’s nothing to hold on to.” – Marilyn Ferguson

    You are going to have to maintain communications with all involved—not just to pass on new information, but to keep them feeling connected to the organization. Don’t be surprised at over- reactions. Again, different temperaments move through the change continuum at different speeds. For instance the leadership or planners of the transition started their transition first. These individuals will move through the transition at a much more rapid pace than those members of the rank and file. The further down the line away from a decision maker, the greater individuals feel the sense of loss, uncertainty and powerlessness. To counter this, ensure individuals get all the information they need; say everything more than once in several different ways, using different channels to do it and keeping the communication focused on managing endings. Be creative and informal—be available for the quick check-in over coffee or grabbing lunch. Offer to host a Question & Answer session. The greater your ability to reassure and respond to information the quicker your membership will process and adapt to the new world.

    Ending

    “All changes, even the most longed for, have their melancholy: for what we leave behind us is a part of ourselves: we must die to one life before we can enter into another.” – Anatole France

    Loop back to the goals and the purpose for the change. Did we successfully meet the goals set? Review any remaining issues or group concerns. Prioritize and create an action plan. Check in with individuals to see how they are doing. Celebrate successes, even the small ones, along the journey.

    Integration

    “It’s nothing personal, it’s just business!” – Mario Puzo

    It is ironic that in the seemingly sterile business environment of mergers and acquisitions great value is placed on the integration of business processes. Cliche?s may run rampant as we tend to put high value on keeping things “all business.” In reality, business is very personal. Human relationships, abilities to learn and the personal aspects of relationship-building play an integral, even critical part in the success of a business. Therefore it makes good business sense to give significant attention to addressing the human aspects of a merger.

    In an effort to integrate business process, it is absolutely necessary to address the reality of integrating business cultures. The challenge is in:

    • Blending two distinctly different corporate cultures
    • Facilitating the creation of a hybrid corporate culture through true and focused cross-pollination of best practices within both organizations
    • Overcoming limitations that geographical boundaries impose on teaching and learning in a new structure

    Not Simply a Business Transaction

    As two companies merge operations, a companion integration of different business values, cultures and workforces is paramount to coming out on the other end of the merger with one cohesive work unit. The blending of two well- established corporate cultures is easier said than done.

    Cross Pollination - Keeping the Best of Both Worlds

    It is easy to forget in the process of merging, that the acquiring entity valued what the acquired entity had to offer in some form or fashion. Therefore, to achieve the best outcome of the acquisition, the goal has to be to take the best of both worlds to create a superior hybrid of both the acquired and the acquiring company.

    Geographically Imposed Limitations – Meeting in the Future, Living in the Past

    “Teamwork doesn’t tolerate the inconvenience of distance.” – Unknown

    Working in different time zones and across vast geographical distances requires flexibility from all parties and the use of creative methods for communication and teaching. Time and distance aren’t the best catalyst for effective communication or efficient operational function, let alone successful employee training on new processes, procedures and systems.

    Recommendations

    To address the challenges time and distance present and to achieve the best of both worlds through cross pollination and blending of cultures, here are a few lessons learned:

    Flexibility is critical — Ensure that people on both sides of the knowledge transfer understand the time zones and work schedules of the people involved. Develop opportunities and schedule meeting times that make sense for all parties. Agree on a time window for joint business actions and make sure that transfer of knowledge and work processes, important decision making meetings and communications are coordinated to occur in that timeframe.

    Documentation is critical — In all cases when meetings occur, have someone take minutes and assign action items. Then these minutes can be shared, used for clarification of decisions that were made and built upon to facilitate progress in future related meetings.

    Relationship building is critical — Connect subject-matter experts to their counter-parts on the other side of the merger. Knowledge transfer extends beyond the typical transition of data and information. If data and information were all that mattered, one massive manual documenting all of the information that people needed to know would suffice. However, knowledge transfer involves human beings and learning styles must be addressed. In addition to the trading of information, the knowledge transfer must also accomplish a common understanding of the scope of business processes, organizational structures and other “tribal knowledge” about the way things really get done in an organization. Once the knowledge holders are identified:

    • Convey a common purpose for the interaction on both sides of the transfer.
    • Provide structure for the interaction.
    • Identify the responsible party for documenting processes and information that is shared between subject matter experts.
    • Encourage the use of a variety of interactive techniques, for example:
      • Mentoring—parties on both sides of the merger have something valuable to teach the other
      • Guided experiences
      • Work shadowing

    Checking assumptions and clarifying understanding is critical— The “language” or vernacular of each organization differs. One simple example is that Job Titles that sound similar may represent vastly different functions. One organization’s Administrative Assistant to the VP of Operations, could be the other organization’s Assistant Operations Manager. Match the right people up with their correct counterpart. In general, it is good advice to question meaning and clarify intent even more so than in normal business situations.

    Creating a Feedback Loop is critical — Ensure a continuous feedback loop between parties for all of the above. It is not enough to show someone how to perform a specific task, once. For the knowledge transfer to be a success, there must be a feedback loop that provides clarification and refinement of the information received.

    Fear of the Unknown

    “Only the unknown frightens men. But once a man has faced the unknown, that terror becomes the known.” – Antoine de Saint-Exupery

    A transition from one thing to another inevitably leaves people dealing with the fear of the unknown. A lot of this fear is related to new management. It can be particularly disconcerting when management changes from local control to management at a distance. It is very difficult at first to learn to operate under a management team that is virtually unknown to the staff. One may not see them; and may not know them. Although it may be more difficult to build a relationship via email and phone than it is in person, the effort is well worth it. Staff who build partnerships with counterparts that operate at a distance must, at the same time, see themselves as being part of a larger, even global picture, versus a separate self-standing unit.

    As staff learns to work under the new leadership they may experience a certain loss of control. They are no longer able to simply make decisions based on the needs of their stakeholders, but have to learn to integrate all of those needs using the new organization’s model and new company policies. In the beginning, there may be a tendency of some to have the opinion, “This is the way it has to be done because this is the way we’ve always done it.” It becomes necessary to take a good, hard look at some processes and determine if they should be kept, changed completely to the new model, or modified to meet the needs of stakeholders while simply adhering “more closely” with new processes and policies. Staff and management have to work together to identify the best way to meet stakeholder needs and then partner within the new structure to make it happen. The budding partnership between the former companies will continue to grow and flourish only to the extent that the fear is dissipated, new knowledge applied and the birth of a new organizational structure accepted.

    In addition to all that goes on before and during the transition, some employees also may feel fear at more than just change and loss of control, but also the unknown surrounding job security. There will usually be a period of time where many wonder whether or not they have a future with the new organization, or if the changes might mean a change in position. Hard work and dedication to the organization and its stakeholders means security for all of those who want it. Just as for anyone who faces significant changes, there is a grieving period, an acceptance period, and finally a move forward as a part of a new structure, devoted to providing the highest level of service to stakeholders and loyalty to the organization.

    Technology

    “Programming today is a race between software engineers striving to build bigger and better idiot-proof programs, and the Universe trying to produce bigger and better idiots. So far, the Universe is winning.” – Rich Cook

    Computer System Integration

    Merging two organizations in today’s world of technology involves the complex merging of legacy and newly emerging technology, particularly in the area of computers. It is imperative to understand and plan for the impact of merging computer systems on the systems themselves, as well on the people that use them. The change may involve sending or receiving information via a new communication pathway. This could be scanning information to a new location, sending and/or retrieving information electronically versus on paper, or using electronic interfaces to directly move information. These changes require training, explanation, testing and support from both of the new business partners. Again, depending on the depth of the change and the temperament of the individuals involved, these changes can be either smooth and orderly or painful and disruptive to the organization.

    To effect a smooth transition, there must be adequate time devoted to documenting, testing and communicating how to use the new system. A proven option is the “train the trainer” approach where subject matter specialists identify lead learners or key members of the membership that are more adept at technological changes and train them, thereby multiplying those available to assist the less nimble in navigating a new system.

    Parallel System Operations

    There is much debate about the cost/benefit of running parallel systems during a migration from an old to a new system. For key business processes, where the livelihood of the organization is at stake, the risks to the organization in not running a parallel system far outweigh the associated cost with running parallel. One example of this might be where an organization is migrating to an fully electronic information system. Running a parallel system for the first 30 days by continuing to operate in a paper mode, while also running in the electronic mode allows a comparison between the two records, validation of the capture of all required information and feedback provision to the players regarding any discrepancies identified. The investment in time is offset by quick detection and capture of any missing services. Additionally, identifying and capturing the requirements of the merging entity can be inserted during the migration, allowing for minimization of downstream confusion and of risks associated with the costs of both hardware and software changes being required in the future.

    Human Resourcing

    “The closest to perfection a person ever comes is when he fills out an employment application.” – Stanley J.

    Staffing levels are a matter of negotiation in a merger or acquisition. Economies of scale should be certainly considered as a potentially efficient approach to this determination. However, one of the next most angst-producing areas requiring attention is how to integrate differing benefit structures.

    Benefit Plans Integration

    Integrating the benefit plans of two or more organizations following an acquisition or merger can be very complex. Unfortunately, the business decision-makers that plan and execute a merger or acquisition are not always those primarily concerned with company benefits. Consequently, the impact of these activities on benefits is usually left to be dealt with as an afterthought in the process or even ignored until after the merger or acquisition has been accomplished.

    Regardless of when it occurs, the first steps to integrating benefits plans are understanding both organizations’ ERISA plans and obligations, identifying any hidden or contingent liabilities and the implications of various course of action (plan merger, plan termination, or leaving the plan with the seller). Keep in mind that there are a myriad of different state, federal and tax laws and notices that must be considered when merging benefit plans.

    In efforts to merge or integrate multiple benefits plans, not only will you be challenged by the technical aspects of this process; but also by the impact on employee morale and how those programs were tied to organizational culture. It is important to recognize that while merging and changing benefit plans may be necessary for the organization, it will have a significant impact on employees both financially and emotionally. In many instances benefit changes are or may be perceived by employees as a cut in compensation or losses. This is an area where organization managers and leaders may want to hide behind that previously mentioned adage that “it’s nothing personal, it’s just business.” However, for employees, pay and benefits are very personal, and their reactions are also very personal.

    Most employers recognize the need to communicate with newly acquired employees. The counsel to “tell them what you’re going to tell them, tell them, and then tell them what you told them” is appropriate. However, it should be modified so that your communications strategy is “tell them what is going to happen, and why, tell them what is happening, and why, and tell them what has happened, and what they can now expect.” It’s the “why” part of the communications that is often missing. When employees are acquired, their lives are infiltrated with uncertainty. They may not remain employed. They may change reporting structures. There may be different processes and procedures that govern their work. There may be new expectations and other changes that will cause anxiety levels to rise. Adding uncertainty about the future of their benefits or improperly setting expectations may increase the employee relations issues, behavior issues and even productivity. Answering the “why” question can serve to minimize or even eliminate some of that uncertainty.

    Creating a “win-win” for both the organization and the employees when integrating benefit plans require organizations to: begin planning early, allow sufficient time; be knowledgeable and comply with regulations; involve the right people early in the process; understand the details involved; and most importantly, be pro-active in communication with employees. This will reduce the amount of work imposed and reduce surprises, and building a better benefits program for the entire organization.

    Conclusion

    “When you jump for joy, beware that no one moves the ground from beneath your feet.” – Stanislaw Lec

    Mergers and acquisitions invariably create uncertainty... or do they? More appropriately stated, one might say that those that undertake to lead mergers and acquisitions create uncertainty. A more studied and proactive approach to handling the issues discussed herein might result in decreasing some of that uncertainty. Learning from past history can provide valuable insights into the causative factors and enable leadership to avoid some of the pitfalls. George Santayana once noted, “We must welcome the future, remembering that soon it will be the past; and we must respect the past remembering that it was once all that was humanly possible.” Doing all that is humanly possible may be a good goal when entering into mergers and acquisitions.


    K.D. Lowe, MHSA, serves as Vice President of Operations for ABC. Mr. Lowe gratefully acknowledges the contributions of his co-authors at ABC Western Region: Kathy Payne, Kathleen Hodgins, Theresa Osburne and Eileen Kuffner. He can be reached at KD.Lowe@AnesthesiaLLC.com.

  • Group to Group: The Impact of Organizational Culture

    Mark F . Weiss, Esq.
    The Advisory Law Group, Los Angeles, CA

    The average pre-deal predictors of anesthesia group merger or acquisition success are, well, average. Economies of scale, increased opportunities, greater profits! If life, even business life, were just so simple.

    Having worked with countless groups, both within and without the specialty of anesthesia practice, on mergers, acquisitions and other affiliations, it’s obvious that there are other key predictive indicators as well.

    This article focuses on one of the most important soft, that is, non-dollar, indicators: the impact group culture has on the likelihood of success of the combined venture. Any merger, acquisition or affiliation that does not take into account the variance between the cultures of the constituent groups is doomed, at a minimum, to trouble, and much more likely, to failure.

    It’s possible to discuss anesthesia group culture from several perspectives. For example, we might view group culture organizationally, socially, or psychologically.

    But if you allow me to assume that you’re like my clients, I’ll discuss it from the perspective of success. I’ll provide a model for your use in gauging the success culture of anesthesia groups that you can use to assess the likelihood that a group merger, acquisition or affiliation will succeed. That model is The Four Circles™.

    The Four Circles

    Far from even being benchmarked to best practices, most anesthesia groups are mired in mediocrity. Let’s be clear about something from the start: I’m not addressing mediocrity in terms of medical competence; rather, I’m addressing the fact that most group leaders, in fact nearly all of their owner-physicians, spend so much time working in their group’s business (that is, practicing within the medical specialty of anesthesiology), that they devote little, if any, time and effort to working on their group’s business. I’m not exaggerating when I say that most anesthesia groups exist only because of a contractual relationship with one hospital. That’s not a plan for business success – it’s simply failure on the installment plan.

    Having represented anesthesia groups as well as other hospital-based groups over three decades, it has become strikingly clear that there is a success- culture that distinguishes the most successful groups, what I term Strategic GroupsTM, from the great majority of the mediocre.

    In fact, I have come to realize that there is a way of ranking groups based on their culture from the most reactive to the most strategic. I call this ranking The Four Circles.

    Where Does Your Group Fit? Where Does Your Collaboration Partner Group Fit?

    The first step in the process is to know where your group fits within the hierarchy of The Four Circles. Of course, this requires that you tell the truth.

    The second is to use it as a tool to measure the cultural level of your proposed merger, acquisition or affiliation partner.

    The process also provides two significant other benefits: The Four Circles can be used by a group actively seeking a collaboration partner, for example, a group seeking an acquisition target, as a filter to identify high potential targets. Lastly, and importantly, it can be used by your group as a stand-alone tool, in the absence of any interest in an affiliation of any kind, to move itself from a low level of success culture to a higher one.

    In each of the following four sections, we’ll explore the culture of groups at each of the Four Circles levels.

    The Reactive Group™

    A Reactive Group exhibits many of the following key cultural characteristics:

    • It exists only as a matter of convenience to further each of its individual physician’s goals.
    • It has little, if any, organizational structure beyond the rudiments required by law, and even those formalities are rarely followed.
    • The relationship among its members may or may not be civil but the mindset is definitely “what’s in it for me?” not “what’s in it for us?”
    • The group is entirely reactive to its circumstances in respect to the hospital, competition, referral sources, and the medical staff.
    • Its sole purpose for existence is to provide services at a hospital—if that hospital no longer wanted to obtain those services from the group, it would have no reason to exist.
    • Their services are completely commoditized. There is virtually nothing that distinguishes their services from any other group of providers within their specialty.

    In many respects, a Reactive Group is worse than no group at all. That’s because a group in the reactive stage provides a false sense of security to its members, even though they are involved, to a large degree, in self delusion.

    Reactive Groups are, in large part, a vestige of the system that existed in and prior to the early 1980s. During that time period, most anesthesiologists practiced independently of any group. The only linkage among them was that they shared membership in the medical staff department. Each physician was in business for him or her self. There was no vehicle for contracting in common or for carrying on any business in common.

    With the onset of managed care and then its further market penetration, there became a need for anesthesiologists to coordinate contracting with those payors, and, accordingly, to tie together their business operations. Equally important as the need to contract together was the need to avoid being viewed as conspiring with one another in violation of antitrust laws designed to prevent price fixing collaboration. These pressures forced independent practitioners, who otherwise were content to continue to be independent, to form group practice entities.

    However, because of their history of independence combined with their distrust of their former competitors, they tended to form entities which met the minimum standards required to be able to contract together.

    These groups lacked any real business engine—they were marriages of convenience only. Although technically bound together, each member continued to desire to “eat what he killed” or, rather, billed, not simply in the sense of work units, but in the sense of the reimbursement that matched those units. Obviously, that was a problem from an antitrust standpoint in that the group was required to be totally financially integrated; however, the pre-group mindset of fighting not only over cases but over cases that provided high levels of reimbursement, continued unabated.

    Some of today’s Reactive Groups are the linear descendents of those early shotgun marriage groups—in those cases, there’s been little, if any, evolution in the business DNA of the group. Other Reactive Groups, although formed much more recently, often result from instances in which the impetus for group formation came not from the members themselves, but from pressure from the hospital to form a group. Although the reasons for formation were different than those that spurred the original, historical Reactive Groups, the result is the same: a number of department members being forced to “live with one another” although that is not their first, second, or perhaps even third choice, independence being the desired business non-structure.

    Stories abound of the strange interaction among members of purely Reactive Groups. For example, among some of my own 1980’s Reactive Group clients, there were incidents of one group member brandishing a gun in an argument over the allocation of cases, fistfights and shouting matches among group members were common, and bizarre behavior, such as acting out by regularly exiting the doctors’ parking lot by driving through the bushes, not out the driveway.

    The obvious indicator that one is dealing with a Reactive Group is the fact that its members are clearly out for themselves, and themselves alone. They tolerate their colleagues as necessary, but that’s about it.

    Accordingly, they do not work together on any planning outside of their one facility arrangement. It is likely that they even view their entity as existing solely at the convenience of the hospital; if the hospital did not renew their exclusive contract there would be no further need for the group and, other than the fact that there would be an impact on a member’s income stream, he or she would not particularly care — they would simply find another relationship somewhere else.

    Lacking any desire to do any business planning, these groups are purely reactive to events that happen to them, whether at the hand of the hospital or of competitors.

    Additionally, because each member views what he or she does as essentially being for his or her own benefit, there is no coordination in respect of providing any level of service above the bare minimum. The group members do nothing among themselves to coordinate any level of delivery of service other than can be managed by a medical staff department.

    A Reactive Group simply is, and that’s it.

    The Group In Equilibrium™

    The next stop in the culture ranking of hospital-based groups is the Group In EquilibriumTM. A Group in Equilibrium exhibits many of the following key cultural characteristics:

    • It exists primarily to further each of its individual physician’s goals although there is some understanding that they must band together as a group in order to compete – in essence, it is a “club” with members sharing at least one common goal: keeping others out.
    • The group follows the minimum required formalities to protect its structure from legal attack.
    • The group members have more or less civil relationships among themselves. They understand, to a certain degree, that fulfilling their individual objectives requires that they align themselves with others.
    • The group engages in a low level of planning as to its very short term future, chiefly in respect of scheduling matters. For the most part, it is reactive to all circumstances outside of its easily accomplishable, immediate concerns.
    • Its sole purpose for existence is to provide services at a hospital — if that hospital no longer wanted to obtain those services from it, it would have no reason to exist.
    • Their services are commoditized. There is little that distinguishes their services from any other group of providers within their specialty.

    The members of a Group In Equilibrium, like the members of the groups one level lower, the Reactive Groups, are guided by a sense of their individual, rather than their group’s best interest. They do, however, understand that it is necessary for them to come together with their colleagues in order to fulfill their individual destinies. Accordingly, there’s generally cordial interactions among group members in the sense of colleagues rather than true partners.

    Just as members of a club understand the need for the club’s continued existence, the physician owners of a Group In Equilibrium have a similar interest in their entity’s continuation. Success, on the other hand, is not measured at the group level, but only on the individual level. “How much did I make this year?” is the driver, not “how can the group do better next year?”

    Take for example, the small anesthesia group which attracts a subspecialty trained member and compensates her on a fixed monthly basis while all of the other members of the group are compensated based upon their production. Although it later becomes apparent this shareholder’s fixed salary is $50,000 a month, in return for which she does one or perhaps two cases a day, five days a week and is generally home by noon, is a tremendous drag on the group’s finances, yet she resists all suggestions that she should devote a portion of her time after lunch to income generating activities on behalf of the group.

    There is little to no planning done for the group’s future. The minimum legal formalities are followed in order to preserve the existence of the group, but, as it’s viewed by its owners as a vehicle for individual, not collective or entity achievement, planning for the group’s future, at least beyond the next year or so, is seen as unnecessary. In fact, those who suggest it are often ridiculed as dreamers. Comments from group members that “the hospital pays a stipend so they really own us” are not uncommon and are rarely challenged.

    Unfortunately, the great bulk of anesthesia groups operate at the equilibrium level. They do what is necessary to keep the group afloat, preventing themselves from sinking, but doing nearly nothing to distinguish themselves in terms of a future separate and apart from the facility (usually one, not more) that they “serve.”

    If that facility awarded an exclusive contract to another group, the Group In Equilibrium would disband, as it has no existence separate and apart from its relationship with that facility. Instead of being seen as a deficiency, most physician owners of Groups in Equilibrium see this lack of real business existence as a fact, and not a sorry one at that, because their primary interest is in their own success disconnected from the group’s, membership in which they simply tolerate.

    On a business level, these groups suffer from the evils of benchmarking, having benchmarked to the leaders in the industry, who are, at best, practitioners of business mediocrity. Their practice skills may be at or better than national standards, but their services are still commoditized in the view of patients, many colleagues, payors, and the hospital.

    The Focused Group™

    The Focused Group™ represents a dramatic shift in the success culture continuum. It exhibits many of the following key cultural characteristics:

    • It exists to further the group’s immediate and midterm goals although group members are also free to pursue their independent goals within the practice specialty outside of the group.
    • The group follows the required formalities to protect its structure from legal attack.
    • The group members have good relationships among themselves, understanding that fulfilling heir individual objectives requires that they align themselves with others.
    • The group engages in a high level of planning as to its short and medium term (6 months to perhaps a year) future. It has no understanding of the interrelation among the internal and external instances and events affecting the group and its relationships and remains largely reactive to all circumstances outside of its easily accomplishable concerns.
    • Its chief purpose for existence is to provide services at a hospital — if that hospital no longer wanted to obtain those services from it, it would have little reason to exist as its outside work is not sufficient to enable it to remain in business.
    • Their services are commoditized. There is little that distinguishes their services from any other group of providers within their specialty.
    • As opposed to the groups lower in the chain, the Reactive Groups and the Groups in Equilibrium, the members of a Focused Group understand that the group exists to further the group’s goals. For the first time in the cultural continuum, the physician members of the group understand that their self interest is furthered by aligning their individual futures with the group’s.

    The fact that group members subsume their individual interests to the group’s, the scope of this alliance between individual members and the group has a clear boundary: What is in the group, professionally, is the group’s; but there is an understanding that individual members may pursue, for their own account, professional opportunities outside of the group. This is more than simply “moonlighting,” it extends to the notion that group members may devote time to pursuing active business opportunities, even ones immediately geographically proximate to the group, for their own benefit.

    The Midland Group (not its real name) provides anesthesia services at three hospitals in a Midwestern urban locale. The group is fully integrated financially, has strong leadership, and the group’s members cooperate among themselves to a very high degree. One of the group’s senior members, Dr. Jones, together with a friend from another anesthesia group across town, opens a medi-spa in a shopping center a few blocks away from the campus of the hospital. The medi-spa recruits nurses from the hospital, both as prospective employees and as prospective customers. Although this puts pressure on Midland’s relationship with the hospital, Dr. Jones asserts that he has every right to pursue his own interests outside of the group’s schedule. The other members of Midland, including its managing members, do not disagree.

    Importantly, the organizational structure of Focused Groups goes well beyond that simply necessary to preserve the entity’s existence pursuant to applicable state law. These groups have somewhat sophisticated management structures through which group members devote some time and effort to group management and planning. However, planning is generally limited in scope to the group’s short and intermediate future, from two or three months out to perhaps, at the maximum, a year.

    The defining, and retarding, characteristic of this planning is that it is additive: improvement is seen as tied to, and built upon, existing conditions. In other words, there is a notion of the need for incremental improvement but there is no understanding of the concept of a truly transformative future.

    This extends to the scope of business activities, flowing from the clearly understood limits that activities outside of the group’s immediate scope is left to the members, not to the group itself. Therefore, there is no mature concept on the group level of pursuing new opportunities. Accordingly, Focused Groups generally remain single-facility focused. And, as is the case with Reactive Groups and Groups In Equilibrium, if the group’s relationship with that hospital ended, the group would have little, if any, reason to continue to exist.

    It also extends to the scope of service quality: although it might be “cutting edge” in terms of professional expertise, it remains sorely lacking in terms of any understanding of what is required to break out from perception as a commodity provider.

    The Strategic Group™

    From the perspective of success, Strategic Groups are the most developed. A Strategic Group exhibits many of the following characteristics:

    • It exists to further the group’s long term goals.
    • The group follows the required formalities to protect its structure from legal attack.
    • The group members have well developed, positive relationships among themselves, understanding that they will maximize their long term interests by maximizing the group’s interests.
    • The group engages in high level strategy as to its short, medium and long term future. Although it remains flexible in order to deal with the inevitable surprises, it actively strategizes and deploys tactics to influence its future.
    • Its chief purpose for existence is to develop its business for the profit of its owner physicians and, as such, does not see its existence as necessarily tied to the existence of its relationship at any particular hospital.
    • The way that their services are delivered is unique. Although it may well be that there are many other providers of their specialty services within the area, the overall combination of the way that the group delivers those services and the experience that they provide to the facilities, to the other members of the medical staff, to their patients, and to the community at large, has created an experience monopoly that competitors, even if they understood what was being provided, would not be able to duplicate.

    The scale of growth from Focused Group level to Strategic Group status is logarithmic — it represents a transformational change in the makeup of the group.

    A Strategic Group exists to further the group’s goals. Its owner physicians understand that the group’s short, medium and long-range goals outweigh their individual interests but, at the same time, understand that the tremendous value created by accomplishing those goals maximizes their own self interests.

    All professional activities on the part of the owner and nonowner physicians are rendered through, and on behalf of, the group. There are no outside anesthesia-related business activities and, in almost all instances, no outside business activities of any sort, save purely passive investment interests unrelated in any way to the practice of medicine. In a very real sense, there is no longer any notion of duality — group and owner physicians are united, not opposed.

    Although there are differing governance structures, for example strong-leader structures and board/ officer structures, Strategic Groups have concentrated authority. There is a clear understanding of the difference between the ownership interest that each member has and the management power which is confined to as small a group as possible. Strategic Groups are not hindered by the “consensus disease” that prevents most groups, even those at the Focused Group level, from achieving phenomenal success.

    In addition to overseeing day-to-day management, the group’s leaders devote significant time and effort to planning for the group’s short-term future as well as to strategizing in respect of the group’s medium and long-term future. Strategy differs from planning in that it is not a process of incremental growth; rather, is a process of envisioning a future and then using the leverage of that goal as if it were a magnet to pull the group toward its much greater envisioned result.

    Inherent in this strategic management is an understanding that nearly all aspects of the group and its activities impact upon its future and, therefore, they can be manipulated to achieve the group’s goals. Consider the following example:

    Garden City anesthesia group provides services at multiple facilities.

    Through an ongoing, intra-group program of tracking case data by surgeons, case type, payor-class, and reimbursement, the group is able to track and trend both individual surgeons as well as participation in various hospital service lines.

    When this continuous data analysis revealed that one of the facility’s new programs was resulting, for the group, in an overwhelming number of charity cases, the group formulated a strategy to deal with both the immediate situation as well as to achieve other goals. The group then developed interrelated tactics to implement each of the strategic thrusts.

    For example, among the group’s concerns were, of course, the financial cost to the group of unintended additional charity care. The data developed by the group demonstrated that the hospital’s new service line was working to incentivize the participating surgeons to actually seek out low to no-pay cases. Better reimbursed cases were being crowded out of the schedule. Therefore, this required a strategy to either obtain significant financial support in return for continued participation in the new service line or to limit or kill the new service line.

    At the same time, the issue of financial support in respect of the service line intertwined with the larger issue of protecting the group’s current level of financial support from the hospital.

    We designed a multi-pronged initiative which included published studies, press releases, in-person meetings with administrators and other influencers including those surgeons whose profitable cases were being cancelled or delayed. Of course, the political support developed though this effort will be of value not only in respect of the instant, charity care service line, but also in terms of increasing leverage in respect of the renewal of its exclusive contract with continued large financial support.

    Strategic Groups increase leverage in other ways as well.

    Strategic Groups understand that simply being wedded to providing services at one facility creates the perception, the entirely correct perception, in the mind of the hospital’s administrators that the group’s mere existence hinges upon the successful renewal of its exclusive contract. As a result, the hospital’s bargaining strength is dramatically increased.

    As a result, Strategic Groups actively develop relationships with multiple facilities. When this strategy is fully developed, the group can simply walk away from a proposed new or renewal facility contract that does not meet its criteria.

    Lastly, Strategic Groups develop significant time, resources and training to assure that they create an experience monopoly which is branded to the group. Although there are other anesthesia providers in the area, the overall combination of the way that the group delivers those services and the experience that it provides to the facilities, to the other members of the medical staff, to its patients and to the community at large, has created an experience monopoly that competitors, even if they understood what was being provided, would not be able to duplicate. As a result, the group becomes the only logical choice to provide services at the facility. It has broken free of the bounds of commodity status.

    Why Four Circles Analysis Is Crucial

    Note that few groups fit nicely within a specific Four Circles category. Most groups have a foot in each of two neighboring levels of group culture. Understanding these cultural distinctions is vital to the success of any planned consolidation of anesthesia groups. Any merger, acquisition or affiliation that does not take into account the variance between the cultures of the constituent groups is doomed, at a minimum, to trouble, and much more likely, to failure.

    Consider the following example:

    Your group of seventy eight anesthesiologists, let’s call it Unified Anesthesia of Catalina, primarily exhibits the traits of a Strategic Group. It provides services at four facilities. It has strong leadership through a small management committee and an empowered managing partner. The group has developed and communicated a strategy for its long term future. All group action is filtered though that strategy. Unified operates on an entirely unified basis, one element being a compensation plan that applies across all locations and practice subspecialties.

    Unified has identified the opportunity to provide services at a community hospital approximately 20 miles distant. It’s presently served by a group of twenty anesthesiologists, sixteen of whom are partners in the “Main Street Group.” Main Street’s lead partner approached your group interested in merging Main Street into Unified in order to, as he put it, “achieve economies of scale.”

    Through your initial due diligence, you learn that on an organizational level, Main Street’s partnership operates on consensus basis. They have not held a partnership meeting for years, with close to total agreement among the partners required before any action is taken. Although the partners have very cordial relationships, it’s clear that “votes” (actually veto power) in this sense are based on what’s best for the individual partner. They have engaged in very little planning, even in respect of their exclusive contract with their facility, which has a one year “evergreen” term that they’ve simply allowed to roll over for the past eleven years. Six of Main Street’s partners also work at several surgery centers in the area (and demand control over their hospital schedule in order to do so) – they work at those ASCs independently of the group and of each other, yet they traded off of their affiliation with Main Street in obtaining those opportunities. Main Street is, at best, a Group in Equilibrium.

    In evaluating this merger opportunity, you must consider the difficulty of transitioning Main Street’s partners into Unified’s governance, scheduling, and compensation model structure. Is it even possible? Would Main Street’s partners be granted a transition period to conform, including transferring all of their practice activities into Union, and if so, how would granting it impact existing relationships within Unified? What if they never conform? Could Main Street’s physicians ever successfully be moved into positions at other Unified facilities or would they “infect” its operation?

    Those are simply a few of dozens of similar, and dissimilar, issues that must be considered in respect of the cultural aspect of the potential merger. Of course, there are also many other facets of merger analysis.

    The key point of this article is that the level of culture development success within your group and within any potential merger, acquisition or affiliation partner is at least as important as any other factor of merger analysis. In fact, even if the “numbers” are right, even if there are tremendous “economies of scale,” attempting to combine groups of widely varying Four Circles ranking is an extremely difficult, if not impossible, undertaking.


    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 complementary educational materials to our readers at www.advisorylawgroup.com. He can be reached by email at markweiss@advisorylawgroup.com.

  • Where Do We Fit In The Alphabet Soup?

    Moe Madore
    Vice President for Practice Management, ABC

    For the last several months the literature on Accountable Care Organizations (ACOs) has flourished. So has the volume of workshops, seminars and webinars, all with the intent of educating providers on what the future will look like, and many addressing how physicians might participate. Independent anesthesia groups are trying to not only understand the ACO rules but are also working hard to determine how they will function in any of the possible structures that emerge in their communities.

    There are various traditional obstacles to the formation of multispecialty groups, such as those posed by the antitrust and antikickback laws. The Patient Protection and Affordable Health Care Act calls upon the Secretary of Health and Human Services (HHS) to adopt regulations that will foster the development of ACOs, and that includes resolving potential conflicts between the antitrust, antikickback and Stark laws and the efficiencies expected to result from the formation of ACOs.

    Given that ACOs will emerge, anesthesia groups will need to be prepared to decide with whom to align themselves. In some medical communities there may already be some partnerships due to pre- existing relationships.

    Independent Practice Associations (IPAs) typically encompass all specialties, but an IPA can be limited to primary care or another single specialty. IPAs can be formed as LLCs, S corporations, C corporations or other stock entities. Their purpose is not to generate a profit for the shareholders, although this can be done. The IPA assembles physicians in self-directed groups within a geographic region to invent and implement healthcare solutions, form collaborative efforts among physicians to implement these programs and to exert political influence upward within the medical community to effect positive change.

    The legislation allows for other types of structures to implement the health care delivery models. These include the:

    • PHO (Physician Hospital Organization), a joint venture between one or more hospitals and a group or groups of physicians. The PHO acts as the single agent for managed care contracting, presenting a united front to payers. In some cases, the PHO provides administrative services, credentials physicians and monitors utilization.
    • MSO (Management Services Organization), a freestanding corporation that is owned by a hospital or PHO. It provides management services to one or more medical practices and serves as a framework for joint planning and decision making. Often, the MSO employs all non-physician staff and provides administrative systems, in exchange for either a flat fee or a set percentage of group revenues.

    Then there are groups that have developed agreements between IPAs and PHOs to set up risk sharing arrangements. The common theme from these will be to set up measurable and attainable quantitative and qualitative patient and fiscal goals.

    The goals of an ACO should include:

    • Ensuring integrity in federal health care program participation
    • Promoting economy and efficiency in program operations
    • Promoting positive patient care and outcome

    The incentive to participate in an ACO is based on meeting quality performance standards (yet to be determined) and sharing in the cost savings (yet to be determined). For providers the ability to provide a high level of care, reduce cost by eliminating waste and continue to be paid fairly sounds like an admirable goal. The challenges within the ACO will include how the various groups are compensated and also how individuals will be compensated. The revenue earned will be distributed to specialists and primary care providers and, in some cases, hospitals. The type of organization will influence the formulas used and will ultimately determine how this restructuring will impact each anesthesiologist’s compensation. Will the budgeted savings materialize? How will the bonuses be distributed among the providers (facility, surgeons, primary care, and anesthesiologists)?

    One concern is what happens if your group has worked with a health care system and has already achieved some improvements—will the new baselines established take these into consideration? Another area of concern is how non- physician revenues (Hospital) will be allowed to flow to physicians without some changes in current legal barriers.

    Every group will need to assess its position in the health care delivery system in its community and determine what kind of opportunities may exist. The reality is that this shift is part of payment reform trend and you will be judged on your ability to participate in a patient centered, physician-led health care delivery model. Each group will be asked to decide who you will partner with and will that mean aligning with a hospital or multiple facilities, larger groups or IPAs. What will be the right structure for you and your group?

    There are some key points that you should always evaluate as the opportunities present themselves. When the goal is to reduce cost, does that translate into reducing the income to providers or to eliminate overhead cost? Who will be making decisions? Does the structure have physician involvement in key decisions or will these be left to the newly-formed members who may not be physicians? What kind of support staff does the new entity have? Look for projected reductions that may or may not be realistic when measured against your experience as these may not meet the objectives which will require changes in other areas. One area requiring anesthesiologists’ attention may be the forecasted volumes, productivity and number of locations (OR rooms and facilities). If these numbers are overstated, the impact will affect the income and lifestyles of all involved. Lastly, a group must understand the legal barriers that currently exist in a plan if non-physician revenue (hospital revenue) is to be shared. The alphabet soup is part of the health care system. The challenge is to become educated and review the information you gain with trusted advisors. Our objective is to keep you apprised of changes and clarifications to the rules as they emerge. In the meantime, stay tuned to the efforts in your community and ask questions about structure, membership, payment system and distribution of shared savings as these will impact your compensation.


    Maurice (Moe) Madore, MBA, CPC, serves as Vice President of Practice Management for ABC. Mr. Madore has over 20 years of experience in the healthcare field and business administration; including operations of billing centers, management, strategic healthcare planning, business financial planning, marketing new business development and physician recruiting and practice management. Prior work experience included 6 years as a Vice President of Medical Affairs at a regional medical center in Maine. He can be reached at Moe.Madore@AnesthesiaLLC.com.

  • The PROMETHEUS Payment® Model Dividing The Pie for an Episode of Care

    Karin Bierstein, JD, MPH
    Vice President for Strategic Planning and Practice Affairs, ABC

    When physicians, hospitals, home health agencies and other providers decide to create an Accountable Care Organization or other integrated delivery system, one major issue that will soon command attention is the distribution of patient care revenues. How will the various providers share the pie?

    One model comes from the PROMETHEUS® Payment allocation system.i PROMETHEUS, a methodology developed beginning in 2004 by a team led by Alice G. Gosfield, Esq. and Franc?ois de Brantes, M.S., M.B.A. pays providers a single, risk-adjusted payment across inpatient and outpatient settings to care for a patient diagnosed with a specific condition. The payment is based on “evidence-informed case rates” (ECRs) and is theoretically equal to the resources required to provide care as recommended in well-accepted clinical guidelines. Thus the total payment for a typical episode of care, or the ECR, is equal to:

    Types of services typically involved in treating the condition * Frequency * Price per service

    A portion of the payment to each participating provider is withheld and, at the end of the measurement period, distributed based on provider performance on measures of clinical process, outcomes, and patient experience. A comprehensive scorecard measures those three variables (process, outcome, patient) at the level of the contracting provider, be it an individual physician, the group or the entire integrated delivery system. Seventy percent of the score is based on the performance of the contracting provider, while the other 30 percent reflects the performance of all the providers involved. The dependence on team performance for the 30 percent underlines the value of coordination of care.

    Withholds to Cover Preventable Complications – Or to Distribute to the Providers If There Are No Complications

    Since HHS, private payers and policy makers began to focus on “Potentially Avoidable Complications” (PACs) and the PAC subset, Hospital Acquired Conditions (HACs), PROMETHEUS has provided for the withholding of a certain percentage of the ECRs for the contingency of avoidable complications. A budgetary allowance for PACs is redistributed into each ECR and is adjusted for severity, so that the ECR for a sicker patient gets a higher PAC allowance. Currently, the PROMETHEUS system holds back roughly 50 percent of the costs of treating PACs, based on the crude estimate that 50 percent of complications are avoidable. Should complications occur, this portion of the budget serves to offset the actual costs of the corrective treatment. If the physicians and other providers can reduce or eliminate the PACs, however, they can keep the entire allowance as a bonus and significantly improve their margins per patient.ii Therein lies an important incentive to continue to bring down the number of complications.

    Example. To illustrate how the payment and the contingency reserve might work, consider the example of the application of PROMETHEUS methodology to knee and hip arthroplasties.iii A group of researchers in Boston analyzed 2005-2006 claims from a database with a population of more than 4.5 million commercially insured persons. Each of the two arthroplasty Episodes of Care had (1) an inpatient facility claim and (2) an “other” grouping of claims including professional services, outpatient facility charges, pharmacy, laboratory, radiology and all other types of services. Pertinent claims from both categories were further classified either as “typical” care for the index condition or as PACs, depending on whether the claim bore a potentially avoidable complication code. All inpatient, professional and pharmacy claims for eligible cases within 30 days prior to surgery and 180 days following surgery were potentially included in the construction of the particular ECR. Eligible cases were defined by ICD-9 procedure and diagnoses codes (both for inclusion and exclusion), patient age and absence of defined conditions or major unrelated surgical procedures, as well as by continuous enrollment and complete data.

    PACs for the arthroplasty analyses consisted of inpatient or outpatient claims in any of the diagnoses fields or and of claims for a procedure related to: adverse effects of drugs, overdose, poisoning, complications of implanted device, complications of surgical procedure or medical care, revision procedures, vascular catheter associated infection, septicemia, meningitis, hepatitis, fluid and electrolyte disturbances, blood incompatibility, perioperative hematoma, hemorrhage, stroke, coma, syncope, delirium, AMI, shock, cardiac arrest, air embolism, pneumonia, respiratory failure, lung complications, iatrogenic pneumothorax, tracheostomy, mechanical ventilation, acute renal failure, urinary tract infections, gastritis, ulcer, deep vein thrombosis, pulmonary embolism and decubitus ulcers.

    The authors of the arthroplasty study were able to construct three different paradigm patients representing increasing levels of severity of illness and corresponding case rates and hold-backs, as shown in Table 3. The first component of the withhold is a flat 10 percent of the cost of typical care. This is repaid to the providers if they meet certain quality standards. The PAC allowance consists of a fixed fee that is the same across all levels of severity ($471 using the study claims data, or 25 percent of the overall PAC allowance divided by the 2076 cases) plus 7 percent of severity-adjusted costs for each level (7 percent is half of the actual total cost of PACS associated with hip arthroplasties, i.e., 14 percent).

    Potentially Avoidable Complications as Measures of Quality

    The hip and knee replacement surgery study showed that “[d]istinguishing between typical care and potentially avoidable complications (PAC) creates an opportunity to hold the system accountable for the latter while holding it harmless for the former.” Avoidance of complications as a quality target with an economic incentive makes good sense. Its financial value can be measured objectively (albeit sometimes with proxy measures). It is of high dollar value: according to the Agency for Healthcare Research and Quality, employers spend about $1.5 billion annually for potentially preventable medical errors occurring during or within 90 days following surgery. A single catastrophic, preventable complication can cost an individual hospital amounts in the six or even seven figures in uncompensated care and malpractice settlements or awards.

    Avoiding negative outcomes is a major quality marker in surgical anesthesia practice. All three of the anesthesia measures available for reporting through the Physician Quality Reporting System (timely antibiotic prophylaxis, protocol for prevention of catheter-related bloodstream infection and maintenance of postoperative normothermia) are aimed at preventing surgical infections.

    Many of the 26 adverse perioperative events and outcomes defined in the ASA Committee on Performance and Outcomes Management’s August 2009 Annual Report”iv (Figure 1) potentially have a measurable cost that could also be used in establishing a reserve or withhold for PACs. Caution: until satisfactory methods for risk adjustment, data analysis and trimming and other statistical techniques, and a host of other technical considerations have been addressed, these events and outcomes are not ready for use in any system that would base compensation on quality. The Committee’s list is a valuable starting point for groups assessing potential areas for clinical and improvement and cost savings in their own practices, however.

    How else might we start thinking about not just the total amounts, but also the individual providers’ respective shares of reserve funds not spent on treating complications or readmission? A simple method might be to assume that physicians account for very roughly 20 percent of spending on medical care. You might substitute the proportion in your own hospital. In Table 3 (previous page), the 20 percent of the $4925 (=$985) combined total margin and PAC allowance for Patient 2 would be shared among the physicians involved in the hip arthroplasty episode—orthopedic surgeon, anesthesiologist, and perhaps the patient’s internist and other doctors who provided care during the index episode. The physicians could decide to allocate the $985 by consensus, or by a formal method such as comparing total Relative Value Units (RVUs for the anesthesiology service could be computed through a ratio of conversion factors or some other mathematical process—this is a topic for a future article).

    The PROMETHEUS payment model is just one possibility, albeit a well developed method. It does have the virtue of not needing to go through a provider organization or ACO. A health plan could make a single global payment to the organization for distribution, but the PROMETHEUS model also permits each provider or physician to be compensated directly by the participating payer based on that provider’s own quality scorecard. The model can also be used within an ACO or other integrated delivery system. Although it is now more than six years old, it remains highly flexible. It is currently the focus of several pilot studies underwritten by the Robert Wood Johnson Foundation.

    Quality-based payment for anesthesia services within a group, an ACO, or other more or less integrated organization is not circumscribed by any established methodologies. One alternative to the model presented above, for example, would be to start with an allocation method based on the proportion of net revenues from professional anesthesia services as compared to other physicians’ services and inpatient/medications/ supplies/OR time and other OR charges/ procedures/anesthesia.

    The requirements for participation in Medicare’s future Shared Savings program as an ACO are very vague (anticipated federal regulations giving more shape to the above requirements of the Affordable Care Act had not been published as of the date that this issue of the Communique? went to print). To be eligible, an ACO must:

    • Be willing to be accountable for the quality, cost, and overall care
    • Participate in the Medicare Shared Savings Program for at least 3 years
    • Have the appropriate legal structure
    • Have a sufficient number of professionals
    • Provide specific information to the Secretary of HHB
    • Maintain a management structure including clinical and administrative systems
    • Adopt a process for:
      • Promoting evidence-based medicine and patient engagement
      • Reporting on quality and cost measures, and
      • Coordinating care
    • Demonstrate to the Secretary that it meets the patient-centered criteria.

    The future regulations will be another tool in our growing understanding of how anesthesiologists might steer and thrive in ACOs and other organizations that reward coordinated care and measurable quality achievements. We already have the PROMETHEUS payment model and the resources on the PROMETHEUS website (www.prometheuspayment.org); the data that many anesthesia groups’ and hospitals’ information systems contain; practical experience that you may already have with private sector integrated health care systems, and your creativity—as well as ours. Comments on the ideas in this article are most welcome. We hope to be working with you on ACO and other shared savings strategies in the near future.


    Karin Bierstein, JD, MPH, serves as Vice President of Strategic Planning and Practice Affairs for ABC. Ms. Bierstein came to ABC from the American Society of Anesthesiologists in 2007. She concentrates on ABC’s partnerships including those with ePREOP and Surgical Directions and serves as a Medicare and healthcare reform expert. She can be reached at Karin.Bierstein@AnesthesiaLLC.com.


    [i] de Brantes F, Rosenthal M., Painter M. Building a Bridge from Fragmentation to Accountability – the PROMETHEUS Pay- ment Model. N. Engl. J. Med. 2009; 261:1033-1036 (September 10, 2009).

    [ii] Robert Wood Johnson Foundation, What Is PROMETHEUS Payment®? An Evidence-Informed Model For Payment Reform. Available at http://www.rwjf.org/files/research/prometheusmodeljune09.pdf . iii Rastogi A, Mohr B, Williams JO, Soobader MJ, de Brantes F. PROMETHEUS Payment Model: Application to Hip and Knee Replacement Surgery. Clin Orthop Relat Res. 467(10): 2587-2597.

    [iv] American Society of Anesthesiologists, Annual August Report of Committee on Performance and Outcomes Measurement, August 23, 2009. http://aqihq.org/CPOM%20Registry%20Data%20Set.pdf.