COVID-19 and Anesthesia: Challenge and Opportunity

Summary: 
The big question everyone is asking these days is what will the new normal be like. Clearly COVID-19 has had a dramatic impact on all anesthesia practices. Only time will tell which of today's challenges will result in new ways of providing care and managing practices.

One of the most interesting outcomes of the Great Depression was the emergence of the rental car business. Avis and Hertz were founded because so many Americans could not afford to buy cars. It was a classic example of American innovation. Today's business traveler could no longer survive without Hertz, Avis, Enterprise and many others. Now that we face a different crisis with the coronavirus, the question is what new businesses or industries will it inspire.

The anesthesia challenges of COVID-19 appear to fall into three broad categories: financial, manpower and strategic. The sudden drop in case volume dramatically impacted every practice's cash flow. Surgical case volumes started to drop on March 15, and it was not until May or June that they returned to some degree of normalcy. Because of the lag in collecting—even when case volumes started to increase—it was months before cash flow recovered. Fortunately for most practices, there were funds available through the CARES Act that mitigated the financial impact.

Getting Creative

The drop in surgical case volume forced most groups to explore some very creative staffing options. Normally, the fundamental challenge is to generate enough revenue to recruit and retain a sufficient number of qualified providers to meet the needs of the facility. When there was suddenly not enough work for providers, the inclination was to furlough staff—which many practices did—although most believed that the pandemic would represent a relatively short-term disruption. For most private groups, it was simply a matter of sticking it out until cash flow recovered. Some of the nation's largest anesthesia staffing companies, however, were not so lucky. It would appear that there are an inordinate number of providers now looking for new jobs.

Most anesthesia practices now have a contractual relationship with the facilities they serve and most facilities must provide some level of financial support for the groups to provide the full scope of services expected. The impact of COVID-19 has added an additional layer of challenge. Anesthesia practices need additional support if they are to maintain traditional staffing levels, but the facilities they have been counting on for support are now also significantly impacted and are, themselves, struggling to stay afloat financially.

Finding Flexibility

It all sounds like a perfect storm; but, as on so many occasions in the past, the market appears to be adapting to the changing circumstances. One man's challenge is another man's opportunity. Necessity may be the mother of invention for many an anesthesia practice.

In many ways, the financial challenge was in fact the least serious aspect of the pandemic. There is something about knowing that one must only tighten one's belt for so long; any one can put up with hardship if there is a light at the end of the tunnel. The CARES Act with its Payroll Protection Plan and other cash distributions helped keep many private practices afloat. Getting providers to work half-time also helped. There were also furloughs, but most practices found a way to manage their balance sheet, even if it meant taking out a loan.

This having been said, some of the payroll and staffing changes impacted some providers more than others. Clearly, the strategies many practices implemented had a demoralizing and destabilizing effect. While most providers have a certain tolerance for variability in their pay check, most get quite nervous when the extent and length of the reduction is unpredictable. Some of the demands were so dramatic that many providers simply quit to look for other jobs. As mentioned, this was most noticeable in staffing company contract practices.

Many practices have already developed flexible staffing models that include a mixture of shareholders, non-shareholders and independent contractors (ICs). If the traditional staffing model was based on a team of employed providers, the new model will look for more flexible alternatives both among the physician providers and the CRNAs. The idea is to staff for an average workload with the ability to flex up in peak times.

Thinking Strategically

Strategically, the COVID-19 crisis has resulted in a free-for-all wherein each practice is attempting to identify its potential risk and formulate a corresponding game plan. As has been mentioned in previous alerts, many hospitals have interpreted the current crisis as justification to employ the anesthesia providers. The idea is to eliminate the confrontational aspects of negotiating stipends with a contracted anesthesia group. Many have noted that there is no way employment will save the institution money, but it might give the facility more control over the department and its financial requirements.

For others, it is a time to revisit local merger options. We have had a number of clients to request data as part of their due diligence process. Given the experience of the past few years, however, it is not always clear that bigger is better. Sometimes, swifter, quicker and nimbler is the better strategy, which is why a number of our newer clients were once part of larger groups.

Ultimately, the basic challenge for anesthesia is the same as it has always been: the need to find a way to provide more flexibility to the customer at a lower cost. We once offered a piece on "Uber anesthesia." It is what hospital administrators want—to only pay for the coverage they actually need—but it is almost impossible to provide. Maybe this crisis will provide the necessary key to a more viable solution. Let us hope that this will be the legacy of COVID-19 within the specialty of anesthesia.

As your business partner, we are here to help you navigate this new normal. If you would like our assistance in thinking through some of the strategies mentioned above, please reach out to your account executive or email us at info@anesthesiallc.com.