Anesthesia Group Size and Governance: Bigger is Obviously Better— Until You Hit an Iceberg

Mark F. Weiss, JD
The Mark F. Weiss Law Firm, Dallas, TX, Los Angeles and Santa Barbara, CA

You do know that big provides the ultimate safety, right?

Just refer to the expertise of P.A.S. Franklin, the Vice President of the White Star Line. “We place absolute confidence in the Titanic. We believe the boat is unsinkable.”

Or consider the wisdom of the famous public company chief executive, Rick Wagoner. “We’ve said this before: we have no plans whatsoever than to continue to run the business.”

Yet when Mr. Franklin uttered those words, the Titanic was already at the bottom of the sea.

At least Mr. Wagoner had several months of wishful thinking left until his sacking as General Motor’s CEO and the company’s bankruptcy filing.

In this short article, we’re going to examine the subject of size as it impacts anesthesia groups.

No, I Am Not a Sizeist

In certain discrete areas, notably in dollars driven to top line revenue, and in total earnings to drive higher valuation multiples, bigger is itself better in business.

And, absolutely, it’s vital that today’s anesthesia groups have contractual relationships with multiple facilities. Being limited to one hospital, no matter how large, is a sign of tremendous weakness in that the facility knows that if the group doesn’t bend to its demands in connection with the next renewal of the contract, there’s no further reason for the group to continue to exist. Yes, some groups would respond with the equivalent of the contractual middle finger and elect to dissolve, but most groups don’t walk; most groups cave.

In other words, in some domains, the binary choice of big versus small is clear: go with big.

But business is multifaceted, not binary. Bigger, as a broad concept, is better only as long as you remain in business. In that regard, size is not the thing at all; success is.

Size is an element of success, but it is not success itself. In fact, size itself is both a blessing and a curse.

Analogizing to the Titanic is Trite, but True

The unsinkable ship. The former USSR. The 1,275 physician anesthesia group that can’t stay financially afloat and is dumped off on a competitor.

All large, but their size came with a heaping dose of fragility.

But how can that be? Size is supposed to provide strength, and it does, to a certain extent. Yet it also comes prepackaged with the fragility of centralized control, the fragility of unmaneuverability, the fragility of ineconomy of scale, and, in business terms, the fragility of defending against highly mobile and highly targeted opponents.

It’s exactly what Robert Taber, in his book, The War of the Flea, the seminal work on guerrilla warfare, wrote about in describing how a small band of guerrilla fighters could emerge victorious in a conflict with a larger, well-organized enemy.

“Analogically,” Taber wrote, “the guerrilla fights the war of the flea, and his military enemy suffers the dog’s disadvantages: too much to defend; too small, ubiquitous, and agile an enemy to come to grips with.”

From the organizational perspective, as in a guerrilla war, change within the organization, as well as within a domain in which the organization interacts, can occur as a result of agitation by a vocal minority or, as we well know, as the result of a microscopic virus.

Just as no vote was required for a dictator like Castro to take over Cuba, no long and drawn out process among “stakeholders” is required to topple the status quo.

What you think is permanent is only temporary. How temporary is the question.

The Dancing Elephant

To survive, then, the anesthesia group elephant must learn to dance.

The dance can be observed both externally and internally, but it all takes place on the inside and is a product of governance. The idea is to take advantage of size and power in the marketplace, while protecting against its inherent fragility through increased maneuverability.

And maneuverability takes us to John Boyd and the OODA loop.

Just as we’re discussing maneuverability for anesthesia groups, the late Air Force Col. John Boyd was instrumental in advocating maneuverability in the design of jet fighter aircraft.

At the time, the thinking was that maneuverability was outdated; in favor was a design for speed. Yet, over time, Boyd’s thinking prevailed.

Boyd wasn’t a technician, an aeronautical engineer. He was a strategist, considered by many to be the second greatest military strategist to have lived, right behind Sun Tzu, author of The Art of War.

Maneuverability was key to Boyd’s strategic thinking, represented most famously by his concept of the OODA loop.

In simplified form, the loop consists of observing, orienting, deciding and acting. (The OODA loop is actually much more complex with various internal feedback mechanisms). The point, however, is that the competitor who can cycle faster through the loop gains a tremendous strategic advantage over its opponent.

Similarly, unless your business in general is set up to take advantage of faster cycling through the loop, it’s a prisoner of its current direction. And, that necessitates that decisions, quick decisions, be made by one or a very small number of leaders—there’s no time to take a vote or seek a consensus. Decision making itself plays out on the top level of a large group as well as on the division and site levels: there must be a balance of authority and control across all levels or the group risks becoming too centralized in terms of decision making to effectively understand the terrain in which it operates.

For entrepreneurial medical groups, relatively smaller size can be a tremendous advantage in an uncertain and unclear market. But large groups, groups with the benefits of size, can balance out the defects of size, the fragility of size, in the same way: by maintaining a high degree of maneuverability.

But for any group, that’s the case only if its leaders have in place the governance structure to enable it to make and implement decisions quickly. Those structures must be nimble. They must empower a handful of leaders, not an unwieldy, bloated Board. Decisions must be made by those elected to do so, not subject to fully collaborative decision-making, and not subjected to required, or de facto, consensus.

But, of course, that’s the case only if those in leadership roles have the time, ability and inclination to actually exercise their power, which is another story entirely.

Mark F. Weiss, JD is an attorney who specializes in the business and legal issues affecting physicians and physician groups on a national basis. He served as a clinical assistant professor of anesthesiology at USC Keck School of Medicine and practices with The Mark F. Weiss Law Firm, a firm with offices in Dallas, Texas and Los Angeles and Santa Barbara, California, representing clients across the country. He is also the co-founder of a healthcare mergers and acquisitions advisory firm, Steering Advisors. He can be reached by email at markweiss@advisorylawgroup.com or at markweiss@steeringadvisors.com.