The Specialty of Anesthesia and its Future

Summary

The world of anesthesia is in a constant state of evolution. Nowhere is this more evident than in the structure of anesthesia entities. Private group practice is still the norm but this is changing as large companies aggregate the market. The question is where will all the aggregation take the specialty? This is the question of the day.

The specialty of anesthesia has been in a constant state of evolution. Many of us understand where we have been and what a typical practice used to look like. Some of us have even come to terms with the current market, but few of us know what the future holds.

Prior to 1980, most private practice anesthesiologists worked alone or for their own professional corporations and most CRNAs were employed by hospitals. The 1980s and 90s saw the formation of hundreds of practices across the country. By the mid-1990s group practices with exclusive contracts epitomized the non-academic anesthesia market. Many factors drove the formation of group practices and the negotiation of exclusive contracts, but key among them, was the need to effectively negotiate managed care contracts specifically tailored to the specialty of anesthesia.

The new millennium saw the proliferation of a new anesthesia entity: the mega group, a practice of 100 or more providers. Then, before long, the anesthesia market became the beneficiary of significant sums of venture capital money and many of the mega groups became aggressive national anesthesia staffing companies. Some of these same companies are now the subject of regular concern and discussion, as they aggressively pursue opportunities for acquisition and expansion. As a result, Envision (the merger of EmCare and Sheridan), USAP, Mednax, Somnia, TeamHealth and NAPA have all become household names in the world of anesthesia.

More recently, we have been working with clients that have been selling their practices to one of these national entities. There are various reasons why a practice might sell out to a larger organization. The most common reason is that they feel they have lost their leverage in the market. The expectation is that the new entity will negotiate better contract rates and provide more job security. Implicit in each transaction is the hope that the new entity has greater resources to manage the practice in the current environment.

In many parts of the country, the negotiation of hospital subsidies and support is a recurring and frustrating exercise for both parties, the hospital and the anesthesia practice. The result is that the hospital ends up taking over the practice, either directly or through one of the national staffing companies. For example, we had clients in California and New York where the hospital recently chose a national anesthesia management company to replace them.

So where does this leave us today? Essentially, all anesthesia services are now delivered in one of five ways: by a solo provider working alone or with other solo providers, by a private group practice (many of whom have become quite large), by a national management company or (aggregator), or by hospital-employed providers, which would include academic anesthesia practices. As the graphic below reflects, these represent a spectrum of options. The point is that whichever category a practice finds itself in today, may not be the case tomorrow.

Many would argue that the market inevitably moves all practices to the right, but there are notable exceptions. Just as we see aggregation, we also see disaggregation analogous to the historical ebb and flow of empires.

One of the significant developments of recent years is that the notion of an anesthesia practice, which used to be defined as a group of providers dedicated to a specific facility or healthcare system, is now becoming irrelevant. The national companies have redefined a practice as a contract. A group of providers only now has relevance to the extent that they have a contract with a specific facility. In this sense, we are seeing the national company models both gaining contracts and losing them, when the providers decide they can service the facility themselves without the national firm.

The current environment is defined by the interplay of two distinct objectives: customer service and profitability. To the extent that the national companies can achieve both, they maintain contracts. To the extent they cannot, they lose contracts. There are so many practices with poor payer mixes that require significant subsidies, there is always an opportunity for alternative staffing models by companies who believe they have a better solution. Experience tells us that bigger entities are not necessarily better positioned or qualified to provide exceptional customer service.

Thus far, it appears that hospital employment is an option of last resort for most providers. With the exception of academic practices, where there appears to be a consistent desire to consolidate billing and revenue under a faculty practice plan, there is little evidence that most hospital administrators actually want to employ and manage the anesthesia department. And its been our experience that very few practices have ended up as hosptial-employed practices.

Ultimately, the question is, where is your practice today and is it well positioned for the future? Is your practice financially viable and can you recruit and retain sufficient numbers of qualified providers to meet your coverage requirements? Are you meeting the customer service expectations of patients, surgeons and administration? You can't manage what you don't measure. If you are committed to maintaining the best quality at the best price, you are probably okay, but nothing in this business is guaranteed.