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Spring 2016

The Road Not Taken

Jody Locke, CPC
Vice President of Anesthesia and Pain Management Services, Anesthesia Business Consultants, Jackson, MI

One of Robert Frost’s most popular poems is The Road Not Taken. It is about two paths that diverge in the woods. It is a wonderful and powerful metaphor for the decisions we make in life. By selecting one option we inevitably forgo another. More often than not this results in endless speculation as to whether it was the right choice. And so it is with the strategic decision to sell one’s anesthesia practice. The allure of being part of a bigger, stronger and better-managed entity is a powerful draw but does it really result in a more secure practice situation? That is the question of the day.

Anesthesia providers are a curious breed. They are credited with having the shortest decision cycle in medicine. They routinely make critical life and death decisions in a matter of seconds. Ironically, despite their facility in the operating room, when presented with major strategic decisions pertaining to their practice they often freeze like deer caught in the headlights. One can explain this on the basis of their training, which involves clinical decision trees that have been assiduously memorized. In other words they perform consistently in the known environment of the operating room and delivery suite. We often joke that physicians and CRNAs are not business people. Although some are, many have simply focused their energy on their professional training and clinical skills. Such an intense focus on managing patients safely through the trauma of surgery has resulted in a population of providers who tend to be extremely cautious and risk-averse in their personal and business lives. Their comfort zone is defined by the operating room and the processes over which they have learned to exercise a modicum of control.

Anesthesia providers are known for their independence. For them anesthesia is both art and science; a unique creation that responds to the unique requirements of patient, surgeon and surgical procedure. Some have suggested that even the notion of an anesthesia practice is an anachronism. Most anesthesia groups operate more as professional business fraternities than as rigorous business entities. The typical American anesthesia practice provides just enough structure and focus to ensure a viable franchise that collects an adequate income to provide a reasonable income to its members without imposing any undue constraints or limitations on the clinical activities of its members. For most, partnership or shareholder status is the medical equivalent of tenure where cause for termination is almost unknown.

How curious is it, then, that so many of these loose confederations of providers are willingly and eagerly selling out to aggregators which offer so little in the way of long term security or protection? What does this say about the current state of healthcare in this country? What does it say about the nature of the specialty and its practitioners? What is the problem to which selling one’s practice is the perceived best alternative? And when a practice decides to merge or sell out, how do its members know they have chosen the best path? There is a lot of wishful thinking in such decisions, but more than anything it is blind faith since no one can really predict the outcome.

Such change can only be motivated by fear or hope, and in the case of what is taking place in the specialty of anesthesia, it is obvious that fear is the predominant motivator. Consider some of the most significant recent developments in U.S. healthcare. There is nothing to reassure providers that things will work out for the best. Just the opposite occurs, from a provider’s perspective; each new regulation, consolidation or proposed quality metric only reinforces a perception that the system is out of control. More service will be required for less pay.

If U.S. healthcare is a boat that has been quietly cruising a predictable course these past few decades, most would agree that it has suddenly been thrust out into uncharted waters. The passage of HIPAA was the first wake-up call. While compliance had been a topic of discussion prior to 1996, the year of HIPAA’s enactment, it became a major concern. One could even say that U.S. medicine has evolved through three phases over the last few decades. In the seventies and eighties one collected what one billed. In the late eighties and nineties managed care changed the rules of engagement so that one got paid what one negotiated. Now it can be said—with only slight exaggeration—that one gets to keep what does not get taken away in a compliance audit.

While most physicians could deal with the implications of HIPAA, the passage of healthcare reform and the implementation of the Affordable Care Act, aka Obamacare, has been an entirely different matter. It is the very nature of the legislation that it presupposes structural changes in the market for healthcare, few of which are actually defined. At every level of healthcare delivery entities are struggling to envision a future that is as clear as the forest paths Frost described and to position themselves to be serious players. Never has U.S. healthcare seen such an explosion of activity. Two themes appear to be driving all the strategic considerations: quality and cost, for the underlying assumptions of Obamacare are that U.S. healthcare is too inconsistent and too expensive. Americans pay a huge premium for less than optimum care.

Capital has a curious way of finding its way into such situations. Investors love to think that one man’s challenge is another’s opportunity. Businessmen are eager to bring order to the chaos of healthcare. The amount of venture capital that has flowed into the specialty of anesthesia in recent years is impressive. It is the availability of such capital to buy and aggregate anesthesia practices that is so dramatically changing the landscape. Obviously there are those who believe that the application of better management will result in better, cheaper and more profitable healthcare. By all accounts, however, one must acknowledge that the proposed outcome is still much more of a concept than a reality.

The current environment has given new life to an old aphorism. The beliefs and strategies that have gotten us to where we are today will not get us to where we want to be tomorrow. American anesthesia providers have always believed that if they consistently provided quality care all the rest of their issues would take care of themselves. Ironically, they may have done too good a job. Quality is now a given. Anesthesia care has become a commodity.

And so anesthesia providers have become increasingly anxious about the future of their practices. They are starting to feel impotent, that the game is rigged, that they cannot compete with bigger,slicker and more aggressive competitors. And so they ask themselves, is bigger better? With increasing frequency they conclude that it must be, not because they know this to be true, but because it appears to be the only alternative.

As scientists, anesthesia providers like to analyze things objectively. The art of administering anesthesia is based on a feedback paradigm where the availability of reliable data about a patient’s physiology allows for effective decision-making. How, though, does one make business decisions when the desired feedback is so illusory and delayed? While the desired outcome of each anesthetic is clearly defined a priori, what is the desired outcome of strategic decision-making? Thoughtful observers suggest three:

  • Job security
  • Increased income for work performed
  • Control over one’s destiny

If the motivation to sell or merge one’s practice is concern for the future, which is the most common concern of most practices today, then this requires careful due diligence. While it is true that larger entities have the ability to ensure providers will have work, they cannot necessarily guarantee any specific work situation. There is growing evidence that hospital administrations are increasingly concerned about the power of anesthesia mega-groups. Many an anesthesia practice has aggressively pursued a merger or acquisition only to learn that such an act would result in termination of the contract.

While it is true that large anesthesia practices have the ability to negotiate better rates with payers, this does not necessarily translate into better physician or CRNA compensation. For those entities that are investor owned, increased contract rates are viewed as integral to generating profits as is the ability to drive down the cost of providing care. Most observers agree that the more aggregation that occurs in anesthesia, the more this will result in reduced provider compensation. The strategy is simple. Today’s aggregators offer new graduates lower salaries but predictability in lifestyle, a formula that seems to be playing well. What they also offer is a career path for those who have management ability. The formula ties the reward of higher compensation to the risks of managing other providers and reducing the overall cost of care.

And to the third litmus test, control over one’s destiny, what is the impact of adding one’s name to a longer list of providers? Clearly it diminishes an individual’s influence or control, unless that individual is politically astute and can be an active member of the management team. But this objective may actually be a chimera. While anesthesia providers love to think they have a certain degree of autonomy and independence, this probably only refers to what happens within the four walls of the operating room. Outside the O.R. no specialty is more captive to the requirements and expectations of its customers.

So why do so many practices and providers so willingly give up what seemed so important to them? Quite simply, most have come to believe they have no alternative, or at least no better alternative. Many may be right but most are simply unwilling to make the changes necessary to meet new market conditions. This perspective is consistent with the long-held belief that all that really matters is good outcomes. Most practices that see themselves as being vulnerable or at risk could probably fix their practice and secure their own future. To do so would be a challenge. What happens instead is that they let someone else impose a better solution.

There is a classic admonition that one will never get rich working for someone else. Most anesthesia providers do not pick the specialty to get rich. Most pick the specialty because they are fascinated by the science, like the work and want to make a difference in patients’ lives. They see themselves as problem-solvers and decision-makers. It is ironic that the very skills that make most anesthesiologists and CRNAs so effective in the management of their patients don’t get applied to the management of their practices. Some large anesthesia practices and aggregators appear to have developed a successful formula for success but these are the exceptions. Many others are still focused on getting big without really having formulated a strategy to ensure security, income and control of destiny.

Ultimately, this is a classic buy-ormake decision. We pay for a service that we cannot provide for ourself. Anesthesia practices either do their own billing or they outsource it to a vendor. The decision to sell or merge should be viewed through the same lens. If the proposed solution does not create more value than you could create yourself then you might be deluding yourself by thinking it is a better option. Frost was prescient. How often do we pick a path just because we think it will be better or easier and how do we know whether it was the right path? That is the question that will haunt us for years to come.

Jody Locke, MA serves as Vice President of Anesthesia and Pain Practice 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. Mr. Locke can be reached at