The Future of Independent Anesthesia Practice

Summary:  The goal of every anesthesia practice is financial and strategic independence. This allows practices to pursue clinical and business opportunities that will support their ongoing financial viability. The problem is that, for some practices, the impact of deteriorating payer mix, declining volume, and unreasonable coverage and call requirements is simply too high a bar to overcome. The result of unsuccessful negotiations with hospital clients can be a loss of autonomy, but this may also provide a greater degree of predictability and security.

The specialty of anesthesiology appears to be at a crossroads. Historically, anesthesia providers have prided themselves on their independence and autonomy. In private practice, providers have always preferred a single specialty group, even though most academic practices are part of a multi-specialty faculty practice model. This preference appears to be the result of at least three factors. Anesthesia providers see themselves as a quintessential service specialty committed to enhancing the safety and comfort of surgical and obstetric patients. It is also true that anesthesia billing is unlike that of any other specialty; surgeons don't have to worry about the time they spend performing procedures, nor do they have such an arcane billing formula to contend with. All they need are CPT and ICD-10 codes to get paid. And then there is the question of the revenue potential of the specialty. Anesthesia providers dread the thought that their revenue will be used to support less profitable specialties such as internal medicine. These strongly held positions notwithstanding, the world is changing. Increasingly, hospitals and healthcare organizations prefer the idea of a collaborative approach to the provision of healthcare.

The Looming Choice

Many years ago, a large anesthesia group was formed in a major metropolitan area. Three hospitals came together under one administration. At the time, each facility had its own independent anesthesia practice. The anesthesia practices were given no alternative. They had to merge three different clinical models into one unified structure. Interestingly enough, the first meeting of the merger committee focused on one question: should they form an independent anesthesia entity or join the newly formed multi-specialty medical group, named after the new hospital structure? After much debate, it was decided that the group should maintain its independence and have an arms-length contractual relationship with the hospital organization. To this day, the consensus of member providers was that their strategic choice was best for the organization.

Although the medical group option proposed to provide a degree of market security, the cost of that security was perceived to be too high. Given the dynamic nature of American healthcare, anesthesia providers prefer to make their own clinical and business decisions. Professional service agreements allow the hospital to present a wish-list of services and coverage requirements. The negotiation of such agreements allows the anesthesia practice to evaluate and price hospital expectations and requirements. Both parties exercise a certain degree of leverage that is deemed to be a necessary and useful part of the process. While the negotiation of necessary subsidies has become increasingly challenging to many practices, most practices do ultimately come to agreement. The reality is that both parties have options if they cannot come to terms.

The Current Climate

The logic of the current and prevailing approach to hospital contracting has allowed most anesthesia practices to maintain their autonomy and independence. Most would also say that anesthesia groups do better financially when they can negotiate their own payer contracts. The problem is that, as public payers such as Medicare, Medicaid and workers' compensation have come to represent an ever-larger percentage of practice volume, the ability to cost-shift discounted public payer rates for preferred commercial rates is diminishing. The public payer percentage now accounts for more than 50 percent of the average practice.

We have also started to see commercial plans such as Blue Cross, Blue Shield, Aetna, Cigna and United Healthcare push back on contract negotiations. Many practices now find themselves caught in a squeeze play. Most report that their biggest challenge is generating enough revenue to recruit and retain a sufficient number of qualified providers to meet hospital service expectations. Increasingly, hospital administrators are starting to believe that the current model has run its course.

A Case in Point

A large community hospital in California that had had a reasonably favorable relationship with its anesthesia practice made the decision a few years ago to find another alternative. The administration brought in a national anesthesia staffing company, which did hire some of the existing providers, but most of the anesthesia providers had to find other jobs. We do not know whether this solution was more cost effective or not. On the one hand, the administration's decision freed the anesthesia providers to pursue other options; but it probably did not really solve the fundamental problem, which was that there was not enough revenue potential to support the number of providers needed to provide the coverage and call expectations of administration.

This example has not been an isolated case. Given the rising cost of anesthesia care, many hospital organizations are looking for other options. Almost every national organization, such as HCA and Tenet, are aggressively looking for ways to reduce the cost of anesthesia care. Many have decided to explore the employment of anesthesia providers. In so doing, they are revisiting the multispecialty practice model. We have a number of anesthesia clients whose members form one department among many, and the list is growing.

Remaking the Model

When change comes to medicine, it is not always in the form of innovation. Often, it occurs because innovation has run its course. Hospital administrators like to use the expression, "tried and true," even though what was previously tried did not always end up being true. Clearly, though, certain models appear to have met the test of time. Among these are organizations such as Kaiser Permanente, the Cleveland Clinic and so many academic faculty-practice plans.

We have a saying in our business: if you have seen one anesthesia practice, you have seen one anesthesia practice. The circumstances of every practice are quite different. Some are well managed and enjoy strong case volume and a positive payer mix, while others do not. Each practice must assess its own situation and develop its own strategic plan. Those that do and those that have a particularly strong relationship with the administrations they serve are likely to thrive well into the future. For others, it is a time of serious reckoning. As the old saying goes, if you cannot find a solution to your own problem, someone will likely find a solution for you.

The American healthcare system is constantly refreshed by new technologies and treatment options, while being increasingly challenged to demonstrate value and lower costs. One path that is being explored for anesthesia practices is to be folded into a multispecialty practice. Rather than looking for ways to stand up to the medical groups that hospital organizations are forming, it may be time to consider what benefits and penalties that model offers for anesthesia. Under a less adversarial relationship, independence would give way to collaboration. Income may be sacrificed for lifestyle and security. The uncertainty of the recent past may be giving way to predictability. The good news is that we have the tools and resources to help anesthesia departments understand how this opportunity would impact their practice.. If you would like our assistance, please contact your account executive or reach out to us at info@anesthesiallc.com.