What’s New in ... Consolidation of Anesthesia Practices: Answers to the ‘Why’

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September 1, 2013 Volume 77, Number 9
What’s New in ... Consolidation of Anesthesia Practices: Answers to the ‘Why’ Patrick Y. Giam, M.D., Chair
Committee on Large Group Practice

“It’s not personal; it’s business.”

– Michael Corleone, from “The Godfather”

The clinical aspect of anesthesia practice is personal and intimate. There is something undeniably special about meeting a patient and using your hands-on, personal, and professional skills to guide someone through one of the most difficult and stressful situations of their life. But the business aspect of health care is far from personal. It’s about making tough choices regarding control, risk and quality. It’s about welcoming a new business partner or maintaining autonomy. It’s about choosing a new financial path or staying the course of proven returns. It’s about positioning one’s anesthesia practice to survive and flourish in a changing environment.

Anesthesia practices are merging, joint venturing, and being bought and sold at a startling pace. According to the Anesthesia Quality Institute, large group practices of at least 70 physicians account for 15 percent of anesthesia practices, 45 percent of the physicians and 36 percent of the total cases in the National Anesthesia Clinical Outcomes Registry. ASA has created a standing Committee on Large Group Practice to improve communication and address the special needs of large practices. With this flurry of national activity, the reasonable question to ask is ... why is this happening? What is the motivation for consolidation? Although unique circumstances may be involved, many practices have common reasons for transitioning to a different business structure. Let’s look at why anesthesia practices are interested in expanding.

1. Improve Delivery of Clinical Services

Health care facilities and insurers are getting larger. The Medicare population is growing. Mid-level providers are expanding their scope of practice and, in some areas, competing directly with physicians. The Company Model refuses to go away. Larger anesthesia groups have more financial, personnel, and business resources that allow them to offer enhanced or specialized clinical services, such as high-risk cardiac, transplantation or pain management expertise. Providing broader and enhanced clinical services can be a plus when it comes to negotiating payment for professional services.

2. Better Billing and Collecting

Improved office operations means better information technology (IT). Better IT means better billing and collecting, which improves the financial outlook of the practice, making it less dependent on subsidies and service-level agreements. Being less dependent on financial support from the facility means the practice has a better chance of maintaining a long-term relationship with the facility. Also, becoming financially independent enables a practice to seek a broader variety of new clinical opportunities.

3. Better Quality

Virtually every payer has moved, or is moving, toward pay for performance. Hospital subsidies may be based on quality measures. An enhanced business structure means improved risk management, quality management, and an improved ability to comply with regulatory and quality reporting measures. A larger organization can spread the cost of adoption of electronic medical records. Better data allow an organization to identify and promote best practices and clinical protocols throughout the organization. This increases both quality and efficiency and, ultimately, the financial bottom line.

4. Better Employee Benefits

Through economies of scale, retirement plans and insurance benefits (life, health and disability) may be improved and at lower cost. Medical liability premiums may favor a larger practice with improved risk management processes. Some practices have become partly self-insured through formation of insurance captives.

5. Diversify and Mitigate Income Risk

Health care facilities are regularly being bought and sold. “Friendly” hospital administrators can change overnight. Expanding the practice means diversifying the income stream over multiple health care facilities in different geographic locations so that the practice is less dependent on any one hospital or surgery center. When insurance contracts dictate that patients move from one facility to another, a larger practice is in a better position to flex its staffing to match the increased surgical load at a new facility with the falling surgical demand at another. Security of income is better in a larger, diversified practice than in a smaller practice dependent on one or two facilities.

6. Allow Anesthesiologists to Concentrate on What They Do Best

Having a dedicated, enhanced business structure allows member physicians to focus on the science of medicine, rather than the business. Practice management infrastructure provides assistance with recruiting, credentialing, marketing, risk management, etc., enabling physicians to spend more time taking care of patients.

7. Opportunity to Enhance Growth

Larger practices have more financial resources and business expertise. Depending on the structure, organizations may have access to private capital or public markets. These vital assets can be used to further grow the organization. There is also the ability to leverage one clinical department in a health care system in order to pick up other business lines. For instance, a multi-specialty company could offer to eliminate a subsidy to a hospital-based practice in exchange for receiving the exclusive contract for anesthesia services.

8. Cash Out

Purchase of a practice, or teaming with a financial partner, can create a liquidity event that gives owners of the practice the opportunity to monetize the growth and success of the current practice. These monies may be taxed at a favorable rate, compared to ordinary practice income.

9. Governmental and Legislative Advocacy

Large organizations have the ability to engage in governmental relations, possibly forming their own political action committees. Practices may hire their own state and federal lobbyists.

In summary, every anesthesia practice that consummates a deal, or is considering a consolidation transaction, has strong reasons for doing so. Occasionally, an unusual or unique situation will be the driving factor. But more often than not, the answers to “why” are straightforward and plainly visible. After all, it’s not personal … it’s business.

Patrick Y. Giam, M.D. is a partner in Greater Houston Anesthesiology/United States Anesthesia Partners.