t the 2007 ASA Conference on Practice Management last January, two panels reviewed exclusive contracts for anesthesia practices. On one, Robert Johnson, M.B.A., Vice-President of Sheridan Healthcare, Sunrise, Florida, Karin Bierstein, J.D., M.P.H., ASA Associate Director of Professional Affairs, and I discussed why hospitals explore new anesthesia coverage strategies, what those strategies include, how existing groups could respond and whether an exclusive contract provides security.

To remain competitive, many anesthesia groups are requiring high levels of compensation for services (CFS) due to poor payer mixes and/or poor O.R. utilization. The CFS to anesthesia groups has risen to such a level that many hospitals are starting to push back by issuing request for proposals (RFPs) or hiring their own anesthesia groups. Groups must decide if they will respond to the RFP as a whole, seeking other facilities in the community, or fragment. If the group fragments, members may find independent practice opportunities within the community or employment positions with the hospital or an anesthesia practice management company (APMC). If the existing group has a service culture that meets reasonable customer expectations, it will usually retain its contract; but if it has a concession culture of “you are lucky to have us,” an alternative strategy may prevail. The “we’ve always done it this way” mentality no longer works in a service industry that may soon be governed by pay-for-performance (P4P) metrics. Stating “we’ve always done it this way” works poorly in a service environment where the metric of P4P may soon prevail. While many outside influences are impacting the private practice of medicine, anesthesiologists can succeed with a service mentality toward their patients, surgeons, nurses and hospital administrators. Paradigms that have worked successfully in the past do not ensure security or stability in the current hyperturbulent era of health care service as a business. Groups should perform S-W-O-T analyses, which objectively identify their internal strengths and weaknesses as well as external opportunities and threats. Because it is better to be proactive than reactive, this exercise succeeds better before a crisis arises.

To some hospitals and anesthesia groups, APMCs represent an evolving alternative to traditional anesthesia group practices. If either is considering a proposal from an APMC, they should do their homework since there are good ones and bad ones. There are three types of APMC relationships: 1) management only of your existing group; 2) employment without partnership due to loss of contract, merger or acquisition; and 3) independently contracted physicians with variable levels of security. AMPCs represent a small, but increasing, fraction of the market for anesthesia services, while direct employment by hospitals is increasing rapidly. As long as supply-and-demand imbalances in the anesthesia workforce exist, all types of entities may grow. Rather than being threatened by reputable APMCs, traditional practices may study them to understand the marketplace. After all, there is no reason why most groups cannot provide a better service as cost effectively as APMCs if they are willing to commit themselves to service the objectives expected by the hospital. With improved strategies (e.g., defining the expectations and staffing levels) and a resolve to implement the appropriate corrective actions (e.g., internal and external O.R. efficiency/utilization strategies), anesthesia groups have little to fear from the presence of reputable APMCs. CFS levels, however, may be so high or relationships so contentious that some hospitals may prefer an APMC even if it is more expensive. There is a risk that some hospital administrators will not discern between a realistic proposal and one drafted to meet pre-existing biases.

Exclusive contracts address duration, termination provisions, notice requirements and may include a “clean sweep” or coterminous provision that results in the pre-emption of medical staff protections and the automatic loss of privileges without right to due process. Public policy balances deference to hospital management with fairness and sympathy for the terminated physicians who are no longer able to practice. A recent Georgia Supreme Court case indicates that judicial sympathies may be changing. Hospitals can terminate anesthesiologists for clinical reasons but cannot terminate or limit them as easily for business reasons. Since anesthesiologists have medical staff “privileges,” there is not an absolute right to practice at a facility, although courts hold that designation in itself establishes a contractual relationship conferring rights and remedies for breach. Contested terminations may revolve around the hospital process of termination. The medical staff bylaw construction, the distinction between public and private hospitals, and state venue (especially with eight allowing “economic credentialing” and eight prohibiting it) also are important. Sources of protection for anesthesiologists include the medical staff bylaws and exclusive contract provisions. The outcome of litigation is not predictable, and hospitals can usually terminate relationships successfully. Without an exclusive contract, hospitals can simply negotiate with new parties of choice. They can evaluate the options, cost and prerequisites to determine whether they will wait for the current contract to expire or give notice of early termination. During this period, the group may or may not be aware that threats to its practice exist.

A fundamental concern for groups is not if change can occur but whether market forces, reasonable expectations, existing group culture and contractual relationships (implied or formal) are aligned in a sustainable model. Even if a group does everything right, other forces may threaten its future. By being aware, objective, intuitive and strategically oriented, this risk should be manageable. An exclusive contract is not a silver bullet.

Asa C. Lockhart, M.D., M.B.A., is a Principal with Golden Caduceus Consultants and a Partner with East Texas Anesthesiology Associates, Tyler, Texas. He is Course Director for the ASA Certificate in Business Administration (CBA) program.