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Winter 2011

Are Anesthesia Providers Destined to Become Hospital Employees?

Jody Locke, CPC
Vice President of Anesthesia and Pain Management Services, ABC


The majority of American anesthesiologists and CRNAs work for independent private practices and take great pride in their independence from the hospitals at which they work. Most of these group practices have some sort of contractual relationship with the facilities they serve that protects their franchise from competitors and that provides a mechanism to ensure that compensation for the level of coverage required is reasonable. Over the past few years many have been forced to sit down and renegotiate the financial terms of these arrangements and the outcomes of these negotiations have not always been entirely satisfactory to all parties. Anesthesia practices are finding it increasingly difficult to ensure their members receive compensation and benefits consistent with MGMA benchmarks.

Hospitals are also finding it increasingly difficult to guarantee anesthesia revenue in the face of uncertain surgical utilization and declining reimbursement. The result is increasing anxiety on the part of all parties as to the future of private practice anesthesia. The healthcare legislation passed by Congress last spring has only heightened the level of concern and raised the specter of hospital employment.

What is the value of independent anesthesia practice?

These developments shed new light on an age-old debate. What is the value of independent anesthesia practice? Who benefits from an arms-length relationship between the anesthesia providers and the facilities they serve? Do hospital administrators really want to employ their anesthesia providers? To what extent has the prospect of hospital employment become the bogeyman of paranoid fears?

A cursory review of the hundreds of hospital systems that have contractual relationships with private anesthesia practices across the country reveals no dramatic shift in employment relationships. There are always outliers and exceptions, but such isolated cases should hardly form the basis for generalization about the future of private practice. The fact is that each practice is unique. There are common themes and challenges to all anesthesia service arrangements but unique factors inevitably determine what is most appropriate to each market.

The common themes to all anesthesia contract negotiations include the need to balance the coverage requirements and expectations of the facility with the economic realities of the practice. Too many administrators have unrealistic expectations that require too much manpower. There is simply not enough professional fee income to cover the cost of the manpower needed. As one HCA employee stated in a personal communication: “If a subsidy is needed it is either because the hospital is expecting too much or because the anesthesia providers want to get paid more than what is fair and reasonable.” If hospital administrators feel they need to offer surgeons flexibility and capacity then they have to be prepared to pay for it.

While it is certainly true that a significant number of hospital administrators have opted to replace existing anesthesia groups with alternatives such as Sheridan, Premier or other large private practices, there are almost always specific factors that led to such a decision. In most cases the group being replaced could have or should have been able to fix the problems before they ended up being displaced. Be that as it may, most hospital administrations are surprisingly risk averse when it comes to their anesthesia team. Surgeons simply do not like having to adjust to a new team of providers.

How does employing the anesthesiologists save the hospital money?

Given the basic economics of anesthesia care it is actually surprising that hospital employment is ever seriously considered. With the exception of faculty practice plans or closed staff model entities that have an a priori preference for an employed model, the very notion of employing the anesthesia providers is counter-intuitive. Logically, one would wonder why a hospital administration would want to take on the specific management challenges of an anesthesia department given such extensive evidence that the current franchise model works quite well. If anesthesia provider compensation is consistent with community norms and MGMA standards then one must ask where is the savings to be found in an employed model, especially given an inevitable tendency for employed providers to be less productive than private practice physicians. But there is also the strategic consideration. An administration that has a contractual relationship with a group that does not perform can simply replace the group, while a hospital that employs its providers is much harder pressed to remedy problematic situations.

Despite the rhetoric and the paranoia, while hospital employment may be a reasonable alternative in some settings, it is rarely a solution to any of the problems that challenge anesthesia practices. All employment does is shift responsibility for delivery of a quality service to some person or entity other than the providers responsible for the care provided. Most hospital companies have made it abundantly clear that it is a recourse of last resort. It is always preferable for the providers themselves to take full responsibility for the quality, the effectiveness and the profitability of the service they provide.

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