January 1, 2013
Volume 77, Number 1
Selling Your Anesthesiology Practice? Key Questions to Consider
Jay Mesrobian, M.D., Chair Committee on Practice Management
Acquisitions of physician practices continue to grow. At the present time, nearly 25 percent of all hospital-based physicians are employed by the hospitals at which they practice, compared to 5 percent in 2000.1 And though exact data on anesthesiologists are lacking, this trend is impacting our specialty as well. Multiple factors appear to be driving this change. Hospital systems are seeking to protect market share, ensure a reliable supply of anesthesiologists and control processes during episodes of care. In addition, hospital leaders recognize that closer relationships with their anesthesiologists are important as reimbursement increasingly is linked to resource management, patient satisfaction and quality-improvement activities. Anesthesiologists in turn are aligning with hospitals due to increasing consolidation among providers, uncertainty about health care reform and declining payments.
The decision to sell an anesthesiology practice presents a number of challenges. First is the need to place a financial value upon the anesthesiology practice itself, a topic covered in a previous ASA NEWSLETTER.2 In order to determine whether the potential partnership is a good fit, the anesthesiologists also should consider a number of issues in addition to practice value. These additional issues merit equal consideration as they easily can impact whether the new marriage succeeds or fails.
1. What will be the group’s governance structure within the hospital system? After an acquisition, the practice’s managing committee may change to include members of the hospital’s management team. This arrangement in itself is not necessarily problematic and actually may provide an opportunity for the anesthesiologists and administrators to work together more closely on common issues such as O.R. efficiency, resource utilization and compensation. The group also needs to determine how much autonomy it will retain. Will the group still be able to make decisions with respect to strategic planning, coverage expansion and hiring while adhering to the overall goals of the hospital system? Similar concepts apply to disciplinary processes: what is the group’s input into the discipline or termination of an anesthesiologist?
2. What is the process for determining physician compensation? This question relates both to internal compensation (how the group divides reimbursement among its physicians) and external compensation (how much payment it receives). If the group has an internal compensation formula that has been working well, will it be allowed to retain it? The organization likely will ask that it approve any existing compensation formula currently in use by the employed anesthesiologists.
Regarding external compensation, it is critical to look beyond the first contract and know how future payment will be calculated. Will the organization provide market-based, competitive physician salaries based upon national benchmarks? Or will it tie compensation to some mix of productivity, quality, patient experience or citizenship? How will the group and hospital system determine compensation for newly hired physicians who were not part of the original agreement? Will the hospital pay for administrative and leadership activities, or does it expect the group to fund this work from its own revenue? If the system expects the group to staff new sites, how will it provide financial support to the anesthesiologists if those sites are not productive? Addressing these questions early in the courtship is important.
3. What infrastructure does the hospital system provide to the group for quality assurance activities? Will the organization provide assistance in data collection, peer-review activities, and surveys of patients and/or surgeons? The hospital also may wish to pay its anesthesiologists based upon value-based parameters such as outcomes, patient experience or resource utilization. If so, what input will the anesthesiologists have into the identification and development of those parameters?
4. If the practice uses an outside company for billing/collection services, will it be allowed to retain it? Newly employed anesthesiologists should assume that the hospital’s finance department (or its equivalent) would interact with the practice’s existing billing/collection system. There likely will be a new link in the cash flow chain because, as employees of the hospital system, the practice’s billings and collections likely will be processed through the hospital’s finance department. The practice will need to ensure that a) payments are allocated reliably to the anesthesiologists and b) that the billing/collection company and hospital develop a compliance program to verify correct coding and documentation practices.
5. Employed anesthesiologists should ensure that they still could advocate for their profession without fear of reprisal from the hospital system, even if their advocacy may conflict with organizational policy. The employment agreement should not place any unreasonable restrictions on the anesthesiologist’s ability to advocate on behalf of the specialty or in support of policies of the American Medical Association, ASA or other medical societies.
6. How are clinical policies developed in the hospital system? This question particularly is important for policies that affect multiple sites and more than one medical specialty. A good example is sedation practices. If the hospital system has multiple facilities, does each site develop its own sedation policy? Or is there a governing committee that determines system-wide policy? Anesthesiologists should determine both the scope of their policy-making abilities and their role in the process of policy development within the organization.
7. Is the organization strategically positioned to adapt to oncoming changes in reimbursement that reward value and resource utilization rather than volume? A recent article by the Health Care Advisory Board identifies four types of economic challenges to hospitals: Decelerating Price Growth, Continuing Cost Pressure, Shifting Payer Mix and Deteriorating Case Mix.3 An anesthesiology practice will want to determine, as much as possible, that its new partner recognizes these challenges and is capable of adopting a risk-based model of integrated, cost-effective medical care.
8. Last, and perhaps the most critical issue, is culture. As Peter Drucker stated, “Company cultures are like country cultures. Never try to change one. Try instead to work with what you’ve got.” How does an anesthesiology practice recognize an organizational culture that supports and welcomes physician leadership? There is no clear answer to this question, but the practice can identify some signs of an organizational culture that aligns interests and encourages communication between the physicians and the organization.
a. Do physicians have assigned and funded roles in governance, practice management and service line operations?
b. Are physicians viewed as knowledge leaders rather than commodities?
c. Does the organization develop physician leaders and provide financial support to do so?
In conclusion, the decision to sell an anesthesiology practice depends on both quantitative and qualitative factors. To increase the chances that the marriage will succeed, the practice should look beyond the initial “dollar signs” and evaluate the organization based upon additional factors, as described above.
James (Jay) R. Mesrobian, M.D.
is a staff anesthesiologist with
Aurora Medical Group, Milwaukee.
1. Mathews AW. Same doctor visit, double the cost. Wall Street Journal. August 27, 2012:B1.
2. Mesrobian J. Putting a value on your anesthesiology practice. ASA Newsl. 2011;75(1):14-16.
3. Health Care Advisory Board. Running on Medicare margins. The Advisory Board Company website. http://www.advisory.com/Research/Health-Care-Advisory-Board/Studies/2011/Running-on-Medicare-Margins. Published 2011. Accessed November 12, 2012.