Anesthesia Business Consultants: Communique winter11

WIN

TE

R 2

01

1

VO

LU

ME

16

, IS

SU

E 1

AN

ES

TH

ES

IAB

US

INE

SS

CO

NS

ULTA

NT

S

Most anesthesiologists can tick off a list of problems with the hospital OR: long gaps between cases, frequent cancellations, chronic delays, pervasive waste. The majority of these issues can be ascribed to disorganization on the hospital side. But while these dysfunctions are not your fault, they are your problem. Inefficiency in surgical services leads to low OR utilization, which translates directly into low anesthesia revenue, high anesthesia costs and long coverage hours. 1. When you raise the bar, surgeons rise to the occasion.

Most hospital ORs assign block time to surgeons based on seniority, not actual utilization. Blocks are usually 4-hour units, which do not facilitate multiple cases. The result is that in many hospitals, OR utilization hovers around 60 percent.

That means a critical resource is not generating revenue 40 percent of the time. The solution is to increase expectations for surgeon case volume. First, establish the 8-hour block as the basic schedule unit. Longer blocks are

➤ INSIDE THIS ISSUE:

How to Increase Practice Revenue by Improving OR Efficiency . . . . . . . . . . . . . . . . . . . . 1Evolving Organizations and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Are Anesthesia Providers Destined To Become Hospital Employees? . . . . . . . . . . . . . . . 3Federal Healthcare Reform: The Push for Quality, Efficiency and Integration . . . . . . . . 6Size Matters: Antitrust Warning Signs in Anesthesia Group and Pain Group Mergers . . 9The PROMETHEUS® Payment Model: Dividing the Pie for an Episode of Care . . . . . . 12Group to Group: The Impact of Organizational Culture . . . . . . . . . . . . . . . . . . . . . . . . . 16Where Do We Fit In The Alphabet Soup? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Business Consolidations: Lessons Learned During The Acquisition of Associated Anesthesiologists, Inc ., by Anesthesia Business Consultants, LLC . . . . . . . . 25Anesthetist Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Event Calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Continued on page 4

How to Increase PractIce revenue by ImProvIng

or effIcIencyJeffry A . Peters, MBA

President, Surgical Directions, LLC, Chicago, IL

Anesthesia Business Consultants is proud to be a

Th e Co m m u n i q u é Wi n T e r 2011 Pag e 2

evolvIng organIzatIons and resPonsIbIlItIes Welcome to the second decade of the twenty-first century, which promises to be even more dramatic for health policy than was the first. Although the Patient Protection and Affordable Care Act was enacted into law last year, we do not yet know more than the outlines of the changes it may bring about. The Administration has only just begun work on the multitude of regulations necessary to implement the legislation. Equally important, and uncertain, will be the reactions of the private healthcare sector. What we do know is that the individuals and organizations that examine the new landscape and seek out the opportunities created by the Affordable Care Act will have the best shot at determining their own future. In this issue of the Communiqué, we explore some of the ramifications of the Act’s emphasis on integrated health care systems (IDSs). Kathryn Cruz-Hicks, Esq. and Adrienne Dresevic, Esq. provide an overview in their article Federal Healthcare Reform: The Push for Quality, Efficiency and Integration. Various types of IDSs are identified in Moe Madore’s article Where Do We Fit in the Alphabet Soup? Karin Bierstein, JD, MPH discusses one important method of allocating revenues between physician and institutional providers in a way that also rewards measurable “quality,” in her review The PROMETHEUS Payment® Model: Dividing the Pie for an Episode of Care. Anesthesiologists already practice in large groups to a much greater extent than office-based specialties and are aware that growth may create antitrust exposure. Daniel Brown, Esq. and

Neda Mirafzali, Esq. explain the basic principles of applicable antitrust law in Size Matters: Antitrust Warning Signs in Anesthesia Group and Pain Group Mergers. Part of the challenge of keeping up with healthcare reform is realizing that the Justice Department and the FTC have been looking at ways to reconcile the needs of new healthcare delivery vehicles with traditional approaches to promoting market competition. Corporate consolidation is not the only path toward success in the new environment. The article that begins on the first page, How to Increase Practice Revenue by Improving OR Efficiency by Jeffry Peters, MBA, President of Surgical Directions, LLC, is a thoughtful as well as highly practical roadmap for anesthesia groups to add value to their facilities in the form of better OR utilization. I draw your attention in particular to the OR performance benchmarks appearing in the table on page 5. A wealth of experience lies behind Mr. Peters’s information that a goal of at least 90 percent on-time starts (within five to seven minutes of scheduled start time) is achievable. Not just OR, but also nurse anesthetist and anesthesiologist assistant scheduling have a major impact on groups’ profitability. Stephanie Zvolenski, MBA offers an analysis of the challenges of satisfying the increased demand for services through more efficient scheduling of anesthetists. For some anesthesiologists, success—or at least survival—has appeared to require non-equity arrangements, notably employment by the hospital. Jody Locke, CPC, Vice President of Pain

and Anesthesia Management for ABC, reviews the paradoxes of employment in his article Are Anesthesia Providers Destined to Become Hospital Employees? Mark Weiss, Esq. reminds us in Group to Group: The Impact of Organization Culture that there is more to a successful acquisition or merger than a great match between the resources and assets of anesthesia groups. There must be a balanced integration of the formerly separate organizations’ respective cultures as well. K.D. Lowe, Senior Vice President for ABC-Western Region and his team share some of the lessons learned during a corporate acquisition of our own in Business Consolidations: Lessons Learned During The Acquisition of Associated Anesthesiologists, Inc. By Anesthesia Business Consultants. All of this is not to say that every anesthesia practice will be better off if it integrates with other corporate entities. There are many practices, including clients of our own, that are going to thrive during the coming decade as they have in past years. It is likely, however, that they will demonstrate some of the quality and value enhancements that larger groups and one-stop shopping healthcare organizations can offer. For the benefit of every evolving anesthesia practice, we will continue to study and provide information on the many types of value enhancements that anesthesiologists can offer.

With best wishes,

Tony MiraPresident and CEO


background

The majority of American anesthesiologists and CRNAs work for independent private practices and take great pride in their independence from the hospitals at which they work. Most of these group practices have some sort of contractual relationship with the facilities they serve that protects their franchise from competitors and that provides a mechanism to ensure that compensation for the level of coverage required is reasonable. Over the past few years many have been forced to sit down and renegotiate the financial terms of these arrangements and the outcomes of these negotiations have not always been entirely satisfactory to all parties. Anesthesia practices are finding it increasingly difficult to ensure their members receive compensation and benefits consistent with MGMA benchmarks. Hospitals are also finding it increasingly difficult to guarantee anesthesia revenue in the face of uncertain surgical utilization and declining reimbursement. The result is increasing anxiety on the part of all parties as to the future of private practice anesthesia. The healthcare legislation passed by Congress last spring has only heightened the level of concern and raised the specter of hospital employment.

What is the value of independent anesthesia practice?

These developments shed new light on an age-old debate. What is the value of independent anesthesia practice? Who benefits from an arms-length relationship between the anesthesia providers and the facilities they serve? Do hospital administrators really want to employ their anesthesia providers? To what extent has the prospect of hospital employment become the bogeyman of paranoid fears? A cursory review of the hundreds of hospital systems that have contractual relationships with private anesthesia practices across the country reveals no dramatic shift in employment relationships. There are always outliers and exceptions, but such isolated cases

should hardly form the basis for generalization about the future of private practice. The fact is that each practice is unique. There are common themes and challenges to all anesthesia service arrangements but unique factors inevitably determine what is most appropriate to each market. The common themes to all anesthesia contract negotiations include the need to balance the coverage requirements and expectations of the facility with the economic realities of the practice. Too many administrators have unrealistic expectations that require too much manpower. There is simply not enough professional fee income to cover the cost of the manpower needed. As one HCA employee stated in a personal communication: “If a subsidy is needed it is either because the hospital is expecting too much or because the anesthesia providers want to get paid more than what is fair and reasonable.” If hospital administrators feel they need to offer surgeons flexibility and capacity then they have to be prepared to pay for it. While it is certainly true that a significant number of hospital administrators have opted to replace existing anesthesia groups with alternatives such as Sheridan, Premier or other large private practices, there are almost always specific factors that led to such a decision. In most cases the group being replaced could have or should have been able to fix the problems before they ended up being displaced. Be that as it may, most hospital administrations are surprisingly risk averse when it comes to their anesthesia team. Surgeons simply do not like having to adjust to a new team of providers.

How does employing the anesthesiologists save the hospital money?

Given the basic economics of anesthesia care it is actually surprising that hospital employment is ever seriously considered. With the exception of faculty practice plans or closed staff model entities that have an a priori preference for an employed model, the very notion of employing the anesthesia providers is

counter-intuitive. Logically, one would wonder why a hospital administration would want to take on the specific management challenges of an anesthesia department given such extensive evidence that the current franchise model works quite well. If anesthesia provider compensation is consistent with community norms and MGMA standards then one must ask where is the savings to be found in an employed model, especially given an inevitable tendency for employed providers to be less productive than private practice physicians. But there is also the strategic consideration. An administration that has a contractual relationship with a group that does not perform can simply replace the group, while a hospital that employs its providers is much harder pressed to remedy problematic situations. Despite the rhetoric and the paranoia, while hospital employment may be a reasonable alternative in some settings, it is rarely a solution to any of the problems that challenge anesthesia practices. All employment does is shift responsibility for delivery of a quality service to some person or entity other than the providers responsible for the care provided. Most hospital companies have made it abundantly clear that it is a recourse of last resort. It is always preferable for the providers themselves to take full responsibility for the quality, the effectiveness and the profitability of the service they provide.

are anestHesIa ProvIders destIned to become HosPItal emPloyees?

Jody Locke, CPCVice President of Anesthesia and Pain Management Services, ABC

Jody Locke, CPC, serves as Vice President of Pain and Anesthesia Management for ABC. Mr. Locke is respon-sible for the scope and focus of services pro-vided to ABC’s largest clients. He is also responsible for oversight and management of the company’s pain management billing team. He will be a key executive contact for the group should it enter into a contract for services with ABC. He can be reached at [email protected].


How to Increase PractIce revenue by ImProvIng or effIcIencyContinued from page 1

more efficient for maximizing cases, and they reduce OR expenses per case. Second, assign block time based on actual volume. Third, require that surgeons maintain a minimum 75 to 85 percent utilization rate to retain ownership of their block. Planned and managed properly, “raising the bar” will not alienate surgeons. In fact, utilization standards strengthen the OR’s service to active surgeons by ensuring them schedule access.

2. Flexibility needs to be built into the system.

Most OR schedules are made up entirely of block time. Private surgeons and surgeons with add-on cases have a hard time getting onto the schedule. While a strong block system is important, inflexible systems cause surgeon dissatisfaction and create long-term problems. To avoid this pitfall, hospitals should establish open rooms to accommodate add-on cases. Better performing hospitals have found that maintaining 20 percent open space provides adequate schedule access to non-blocked surgeons and physicians with add-on volume. Properly managed, open rooms can achieve high utilization rates. Hospitals also need to take a careful look at the OR draw-down. Many ORs all but close up shop after 3:00 p.m. The problem is that most surgeons now have to spend more time in the office to generate patients for surgery and need more “after hours” access to the OR for procedures. Better performing ORs now hold open up to one-third of rooms into the late afternoon to accommodate add-on cases.

3. Efficiency begins on the front end.

Case delays and cancellations are huge challenges to day-to-day efficiency. In most hospital ORs, the majority of cases begin more than five minutes

late and cancellations run above three percent. The main cause is inadequate pre-operative preparation—patients arrive on the day of surgery with incomplete tests and unmanaged medical conditions. Effective ORs have created processes for ensuring all elective surgical patients are evaluated a minimum of three to five business days prior to surgery. Surgeons, anesthesiologists and nursing staff should work together to develop standards for pre-operative testing based on surgical invasiveness and comorbid conditions. Leading pre-anesthesia testing units have developed a phone-based patient interview process driven by a patient risk assessment questionnaire. Effective pre-op assessment processes not only reduce same-day cancellation and surgical delays, they can also dramatically improve patient outcomes. This will soon become even more important as payers stop reimbursing hospitals for preventable infections, readmissions and other quality-related problems.

4. If Toyota can do it, the OR can do it.

A hospital OR is a busy place, but busyness does not equal efficiency. Most ORs have ample opportunity to streamline and rationalize processes. Anything an OR can do to enable surgeons to get in one or two more cases a day will significantly increase profitability. Leading ORs have made great strides in efficiency by using Lean manufacturing tools developed by Toyota and other organizations. Value stream mapping can be used to map OR processes, identify bottlenecks, spotlight waste and shrink timelines. It is especially valuable for redesigning turnover team responsibilities. One high-efficiency move for many ORs is to create dedicated nursing teams for cardiovascular services, neurology and other key specialties. Recently, I worked with a hospital OR that used Lean techniques to redesign

ePREOP™ – A Tool to Increase the Efficiency and Effectiveness

of the Preoperative Process

ePREOP is a practical soft-ware service, offered through ABC partner ePREOP™ Integrated Preoperative Services, that bridges the gap between the physician office and the operating room. The web-based software gathers information from an existing electronic health record or directly from the patient using ePREOP’s intake form. This intake form is available online via home com-puter, clinic-based kiosk, or iPad. ePREOP automatically analyzes that information (evaluating hundreds of thousands of data points), considers surgical risk, and gener-ates evidence-based preoperative clinical guidelines. These recommendations de-crease healthcare costs and may improve outcomes. Participating anesthesia groups will increase revenue for the contracting institution and secure their standing as a valuable partner. Anesthesiologists can access their patient’s history from a computer or mobile device prior to surgery and com-plete an entire preoperative evaluation at the patient bedside. Working with the Anesthesia Quality Institute, and through a web-based connection, ePREOP allows the anesthesiologist to track a number of qual-ity measures, including PQRI data that can help increase reimbursement. ePREOP increases reimbursement for a subscribing institution through a variety of services including facilitating data transfer between parties, providing accurate test-ing protocols, and decreasing case delays/cancelations. ePREOP also captures pa-tient payment information, including both insurance and credit card information. This allows for prompt payment collection regardless of whether the deductible has been met or if the patient is not insured. These payment capture services can be utilized by both the contracting facility and anesthesia groups. Please visit www.epreop.com for more information.


vascular surgery workflows. The initiative reduced average turnover time from 52 minutes to 16 minutes and increased cases per block from 2.14 to 3.17.

5. Business discipline is critical to success.

Lack of business focus is a major problem for most hospital ORs. Poor ex-pense management eats away at profitabil-ity. Poor strategic planning undermines the long-term viability of the department. Hospitals need to make sure the OR management team includes business expertise. Effective management teams pay careful attention to nursing paid hours versus worked hours and develop a flexible staffing matrix that maximizes worked hours per OR minute. Supply chain management represents another opportunity. Most ORs focus on supply costs, but it is even more important to look at utilization and waste. The management team should examine surgeon preference cards and surgical packs to identify and eliminate high-waste items. Up to 90 percent of all supplies can be held on consignment, significantly reducing inventory expenses.

mutual benefIt

Anesthesia can play a leading role in helping hospital administration understand these issues and make

appropriate changes. In high-performing ORs, an anesthesiologist is appointed medical director of perioperative services and co-manages the OR with the nursing director. Together they implement key improvements that benefit both the OR and anesthesia:

• Block schedule reforms that boostOR volume also increase anesthesia practice revenue.

• Increasingutilization rates,decreas-ing case delays and cutting turnover times will help anesthesia control costs and work hours.

• Helping the OR reduce expenseswill take the pressure off anesthesia stipends.

But how will hospital administration receive these recommendations from an-

esthesia? In my experience, anesthesiol-ogists have every reason to expect keen interest. High performance in the OR is critical to hospital success. In fact, perioperative services accounts for more than 65 percent of revenue in better performing hospitals. Yet most hospital administrators are daunted by the complexity of the department and are reluctant to wade too deep into OR processes and physician politics. In this environment, administrators will welcome any outreach from anesthe-siologists who understand surgical ser-vices and are willing to help the hospital increase OR revenue and cut OR costs.

OR Operational and Organizational BenchmarksBest practices and performance targets for OR productivity and profitability.

Metric BenchmarkSchedule 8-hour blocks þUtilization 75% minimum requirement þOpen rooms 20% þPre-op prep Phone screen (3-5 days prior) þNursing model Specialty teams, flexible staffing þCancellations <1% þOn-time starts ≥90% (within 5-7 minutes) þTurnover time (IP) 20-35 minutes þTurnover time (OP) 10-20 minutes þ

Jeffry A. Peters, MBA is a nationally recog-nized leader in devel-oping “best in class” perioperative ser-vices. He has helped academic medical cen-ters, health systems, community hospitals and surgeon-owned ASCs raise surgeon satisfaction, grow OR volume, improve market share and increase perioperative profitability. His work focuses on align-ing governance, operating systems, per-sonnel and financial incentives to drive organizational performance. Mr. Peters writes and speaks regularly on hospital/physician integration, perioperative im-provement and anesthesia contracting. He received his MBA from Northwestern Kellogg School of Management. Mr. Pe-ters is president of Surgical Directions, LLC. He can be contacted at (312) 396-5403 or [email protected].

Responsibilitiesn Plan and lead rapid change in OR

policies and proceduresn Orient the OR toward surgeon servicen Redesign the block system to improve

utilization and surgeon accessn Sponsor and direct operational

improvement initiativesn Create a strategic plan for growing

volume and increasing profitability

Membership> Clinically active surgeons (several specialties)> Anesthesia leadership> OR medical director (an anesthesiologist)> Hospital CEO or COO> Hospital CNO> OR nursing director> OR business manager

Surgical Services Executive Committee (SSEC)

Collaborative OR GovernanceThe most effective way for hospitals to plan and implement OR productivity improvements (described in the accompanying article) is to create a collaborative governance structure led by physicians. The following schema for a surgery board of directors has helped ORs nationwide increase utilization, improve efficiency, grow market share and boost profitability.


By now, most healthcare providers have at least a basic understanding of the recent and broad sweeping federal healthcare reform legislation commonly known as the Affordable Care Act,1

which was adopted during March, 2010. Although Republicans in Congress are expected to use the “power of the purse” to limit the impact of the Affordable Care Act, it is anticipated that those aspects of the law focusing on reforming the healthcare delivery system will be less constrained than those provisions focusing on health insurance reform.

Among its many facets, the Affordable Care Act functions as a catalyst for integration among health care providers (including anesthesiologists) by mandating that Medicare and Medicaid pay for value (i.e., quality and efficiency) as opposed to volume. Achieving the performance standards imposed by the federal government under the Affordable Care Act will require coordination and cooperation among providers. As a result, the healthcare community is responding to the Affordable Care Act by taking action and preparing for change. Healthcare attorneys across the country are diligently working to organize corporate structures and negotiate relationships to allow their clients to thrive in this uncertain reimbursement environment, while simultaneously ensuring compliance with the complex state and federal healthcare regulations.

This article summarizes certain specific aspects of the Affordable Care

Act that encourage integration within the health care industry, including: (1) the Medicare Shared Savings Program, (2) the Center for Medicare and Medicaid Innovation, (3) the National Pilot Program on Payment Bundling and (4) the Hospital Value-Based Purchasing Program.

Medicare Shared SavingS PrograM

One aspect of federal healthcare reform eliciting significant interest among healthcare providers is the Affordable Care Act’s Medicare Shared Savings Program, under which Accountable Care Organizations (ACOs) that meet certain quality and efficiency performance standards will be eligible to receive certain financial incentives (enhanced reimbursement).2 The Secretary of the United States Department of Health and

Human Services is required to establish the Shared Savings Program no later than January 1, 2012.

The Shared Savings Program embraces the concept of the patient-centered medical home. Under the Shared Savings Program, each ACO will be assigned at least 5,000 Medicare fee-for-service beneficiaries based upon those beneficiaries’ utilization of primary care physicians. In comments by the American Society of Anesthesiologists (ASA) made during December, 2010 to the Centers for Medicare and Medicaid Services (CMS) regarding the Shared Savings Program, the ASA expressed its support for a surgical home model to achieve further coordination of care led by anesthesiologists. Such a model could be adopted in connection with the medical home concept that will be promoted by ACOs.

The Affordable Care Act provides that numerous types of organizations can become ACOs. For example, the various types of models include hospital employment models, group practices, joint ventures, physician organizations, physician hospital organizations and contractual models such as management services arrangements. Notwithstanding such structural flexibility, all ACOs will need to satisfy certain standards, including for example, each of the following: (a) being willing to be

Federal healthcare reForM: the PuSh For Quality,

eFFiciency and integrationKathryn Hickner-Cruz, Esq.

Adrienne Dresevic, Esq.The Health Law Partners, PC, Southfield, MI

1 The “Affordable Care Act” refers to the Patient Protection and Affordable Care Act adopted March 23, 2010 (“PPACA”), as amended by the Health Care and Education Reconciliation Act of 2010 adopted on March 30, 2010 (“HCERA”).

2 PPACA Section 3022.

accountable for the quality, cost and overall care of Medicare beneficiaries; (b) contractually committing to participate in the Medicare Shared Savings Program for at least three (3) years; (c) maintaining a management structure that includes clinical and administrative systems; and (d) adopting processes to promote evidence based medicine and patient engagement, report on quality and cost measures, and coordinate care. The Secretary will promulgate regulations to refine each of these broad and amorphous requirements. As a condition of receiving Medicare shared savings payments, ACOs will need to submit information to the Secretary as necessary to determine the quality and efficiency of care furnished by the ACO. Each ACO will need to have the information technology and other electronic health record (EHR) infrastructure in place to maintain, share, retrieve and report meaningful and usable data.

In order to achieve the clinical and administrative coordination and sharing of information that will be necessary to the success of ACOs, physicians, hospitals and other professionals will need to integrate (both clinically and either corporately or contractually) but within the constraints of applicable law. Significant bodies of federal and state law impose numerous barriers to integration among healthcare providers, including the federal Anti-Kickback Statute, the federal Stark Law, and the federal Civil Monetary Penalty Law (all of which are designed to prevent fraud and abuse with respect to the federal healthcare programs), federal tax exempt laws (prohibiting, for example, impermissible benefits to private individuals), the federal and state patient privacy laws, including the Health Insurance Portability and Accountability Act of 1996, as amended (HIPAA) (setting forth standards for the security

and privacy of patient information) and the state corporate practice of medicine doctrines (adopted, in part, to preserve the unique attributes of the physician-patient relationship). Furthermore, ACOs will need to be designed with sensitivity toward the federal antitrust laws, which are designed to encourage competition and limit market concentration. Many experts envision progressive changes in many of these substantive areas of the law as governmental authorities attempt to reconcile the tensions created between current legal requirements and the integration required to operate a successful ACO.

Additional guidance from CMS regarding the Shared Savings Program is expected to be published soon. As referenced above, during December, 2010 the ASA provided CMS with its comments regarding the Shared Savings Program and its insight with respect to anesthesiologist participation in the Shared Savings Program due to the unique nature of anesthesiology and the limited resources of those anesthesiologists that are solo and small practice providers.

center for medIcare and medIcaId InnovatIon

The Center for Medicare and Medicaid Innovation (CMI or the Innovation Center) is charged with exploring innovative payment and service delivery models that improve the quality and affordability of Medicare and Medicaid coverage, focusing especially on those models that address groups of individuals experiencing deficits in care leading to poor clinical outcomes or potentially avoidable expenditures.3 The Affordable Care Act sets forth twenty models deemed to accomplish these objectives and a list of eight additional considerations for the selection of models. CMI has already announced new initiatives that focus on the “medical home” concept. Because CMI will embrace the principles of patient

centeredness, coordination of care, and the improved quality and efficiency of health care services, the CMI programs are likely to promote bundled payment programs, ACOs and other integrated models. To advance the mission of CMI, the Affordable Care Act provides $10 billion in funding during fiscal years 2011-2019.

natIonal PIlot Program on Payment bundlIng

The Affordable Care Act requires that the National Pilot Program on Payment Bundling be established by January 1, 2013 and that it shall continue for a period of at least five (5) years.4 Groups of providers and suppliers (each of which must include a hospital, physician group, skilled nursing facility and home health agency) will need to organize themselves under a single umbrella for purposes of submitting an application to participate in the Payment Bundling Program. Those participants that are accepted into the program will receive a comprehensive bundled payment covering certain services furnished to an individual during an episode of care with respect to covered medical conditions. For this purpose, an “episode of care” includes: (a) the three days prior to the admission to the hospital for the condition, (b) the length of stay in a hospital and (c) the thirty (30) days following discharge from the hospital. The services included are acute care inpatient services, physician services, outpatient hospital services, post-acute


Continued on page 83 PPACA Section 3021.4 PPACA Section 3023.


services and others. By placing risk upon the providers and suppliers participating in the organization that applies for and participates in the program, the Payment Bundling Program seeks to reduce costs. It is anticipated that the necessary collaboration required among providers participating in the Payment Bundling Program will be challenging, even for those providers that have substantial experience with integrated models and the acceptance of risk. Among other hurdles, the organization applying for the program will need to determine how the bundled payment should be allocated among the various providers and suppliers in the group, which is an especially difficult task considering the duration of an episode of care and the wide range of services and providers that are covered by a bundled payment.

HosPItal value-based PurcHasIng Program

The Hospital Value-Based Purchasing Program is another example of CMS transitioning itself from a volume-based purchasing program to a value-based purchasing program that compensates providers for quality and efficiency rather than quantity alone.5 Beginning no later than October 1, 2012, the Value-Based Purchasing Program will provide incentive payments to certain hospitals that receive reimbursement through the inpatient prospective payment system and that achieve certain performance standards relating to various measures. For the 2013 fiscal year, the measures will cover at least acute myocardial infarction (AMI), heart failure, pneumonia, surgeries and certain health care associated infections. The Value-Based Purchasing Program will include only quality standards until 2014, at which

time the program will be expanded to also include efficiency standards. The Value-Based Purchasing Program will be funded through a reduction in the base diagnosis related group (DRG) payment amounts for all hospitals (1% for fiscal year 2013; 1.25% for fiscal year 2014; 1.5% for fiscal year 2015; 1.75% for fiscal year 2016 and 2% for fiscal year 2017 and after). Payments made under the Value-Based Purchasing Program will be in the form of increases to base operating DRG payments after the reduction just described. Better performing hospitals will receive larger incentive payments based on the methodology established by the Secretary. In order to achieve the quality and efficiency objectives, hospitals will need to collaborate with their providers and hold them accountable through various mechanisms, which may include, for example, hospital co-management company arrangements, physician hospital organizations (PHOs) and other contractual mechanisms. An example of a contractual mechanism requiring providers to cooperate with the hospital to improve the quality of care are those provisions commonly in exclusive anesthesia services agreements providing that certain compensation or subsidies from the hospital to the anesthesia providers are only payable upon the achievement of certain quality benchmarks (i.e., those provisions providing that certain funds are placed at risk).

* * *Notwithstanding the uncertainties

surrounding federal healthcare reform, groups of physicians, hospitals, and other providers are developing structures and relationships that will allow them to

transform themselves into integrated entities and networks so that they may thrive in an evolving health care reimbursement environment. This proactive approach is advisable considering the substantial time and monetary resources that will be required in order to effectively integrate in a manner that allows providers to achieve the quality and efficiency goals being adopted pursuant to the Affordable Care Act. We encourage all providers to reach out to their professional organizations and professional advisors to keep abreast of the continual developments in this area of the law.

Continued from page 7

federal HealtHcare reform: tHe PusH for QualIty, effIcIency and IntegratIon

Adrienne Dresevic, Esq. is a founding member of The Health Law Partners, P.C. Ms. Dresevic practices in all areas of healthcare law and devotes a substantial portion of her practice to providing clients with counsel and analysis regarding Stark and fraud and abuse. Ms. Dresevic can be reached at [email protected].

Kathryn Hickner-Cruz, Esq. is a health care attorney with The Health Law Partners, P.C. Ms. Hickner-Cruz specializes in health care transactional matters and compliance with federal and state health care regulations. She regularly assists her clients by structuring and facilitating corporate reorganizations, mergers, asset acquisitions and divestitures, private placements, and joint ventures. Ms. Hickner-Cruz has expertise in federal and state self-referral laws, including Stark, federal and state anti-kickback laws, HIPAA and state privacy laws, and federal tax exempt laws. She can be reached at (248) 996-8510 or [email protected].

Adrienne Dresevic Kathryn Hickner-Cruz

5 PPACA Section 3001.

Continued on page 10


The prospect of physician practice mergers can look clean and clear on the front end: perceived efficiencies, additional in-office revenues and additional power to negotiate attractive prices from commercial health insurance plans. But bigger doesn’t always mean better. The back end of a merger can get ugly with the Federal Trade Commission (FTC), especially if the merged practice tries to bully its way to higher reimbursement. Compliance with antitrust rules is an important due diligence component of any health care combination.

Antitrust Rules. The federal Sherman Antitrust Act 1890 prohibits contracts, combinations and conspiracies in restraint of trade. Not all combinations violate the Act—only contracts that promote unreasonable restraints of trade are at risk.

Contracts retraining trade come in two judicial flavors. Some agreements—such as the agreement of local anesthesiologists to fix the price to charge hospitals for their services, or agreements to boycott certain hospitals—are so plainly anticompetitive that no examination of the arrangement’s pro-competitive effects will save the conduct from antitrust penalties. In other words, these agreements, by themselves, trigger “per se” Sherman Act violations.

Alternatively, the suspect agreement may be less egregious. Antitrust penalties attach to these types of arrangements only if the anticompetitive effects of the

agreement outweigh the beneficial pro-competitive effects. Courts view these arrangements under the “Rule of Reason.” This analysis requires an examination of the relevant service and geographic markets as well the overall competitive effects before a violation is found.

Antitrust violations are felonies with penalties of up to 10 years in jail and $1,000,000 fine for individuals and $100 million or more for corporations. Injured parties can bring private lawsuits against violators seeking treble damages and attorney fees.

You always want your arrangement to wind up in the Rule of Reason bucket.

Otherwise, it’s “Game Over” if you find yourself with a per se anticompetitive agreement.

Hart-Scott Rodino Notices. The Hart Scott Rodino Act requires both acquiring and acquired parties in mergers, acquisitions, or certain other transactions to file pre-closing notifications with the FTC if the jurisdictional monetary thresholds apply. However, the notice applies only for large-dollar transactions whose total transaction consideration exceeds $63.4 million in 2010. Persons engaging in transactions involving lesser amounts are not required to provide a pre-closing notice.

Size MatterS: antitruSt Warning SignS in aneStheSia group and

pain group MergerSDaniel B. Brown, Esq. Neda Mirafzali, Esq.

The Health Law Partners, PC

To Merge or Not To Merge? So what are the antitrust risks in merging anesthesia practices? Assuming there are no price fixing or other per se agreements, the arrangement will likely be viewed under the Rule of Reason analysis. Key to this analysis is whether the merged entity has dominant market power to suppress competition and whether the anticompetitive effects of the merger outweigh the pro-competitive effects.

For example, in 1982, the United States Supreme Court considered a case where a foundation originated a schedule of physician charges to be approved and used by its physician members in the local market. The members constituted 70% of all of the practicing physicians in the Phoenix, Arizona area. The Court deemed the physicians’ agreement to use the fee schedule to be per se illegal price fixing under the antitrust laws. Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982).

Likewise, in 1996, the FTC issued a Business Review Letter describing why it would likely challenge the joint venture combination of five Orange County, California anesthesia practices under the antitrust laws. See, FTC Business Review Letter, Orange Los Angeles Medical Group, Inc. (“ORLA”) (March 8, 1996.).

ORLA was to be comprised of five separate anesthesiology practices in Southern California. Each practice was the exclusive or dominant provider of anesthesia services at the local hospital served by the practice. Together, the local hospitals accounted for the lion’s share of all managed care expenditures in Orange County.

ORLA’s sole purpose was to contract with managed care customers for the individual practices’ anesthesia services

at the hospitals. ORLA would negotiate a single payment covering all five groups. The managed care customer would pay ORLA for the anesthesia services provided by the group and ORLA would distribute the proceeds to the group that provided services.

ORLA argued that the combination created financial efficiencies for the anesthesia providers. Using a Rule of Reason approach, the Department of Justice defined the relevant service market to be managed anesthesia services and the relevant geographic market to be Orange County, California.

Although ORLA’s members accounted for only 30% of the total anesthesiologists in Orange County, the DOJ drew the relevant market around these five practices and six hospitals. In this market definition, ORLA would reduce the number of group anesthesia competitors able to serve Orange County hospitals from six to two. Therefore, the DOJ concluded that the anticompetitive effects posed by ORLA’s operation outweighed the alleged pro-competitive efficiencies claimed by ORLA.

FTC Guidance for Physician Joint Ventures. Recognizing that health care providers can generate legitimate price and cost efficiencies through combinations, the FTC published in 1996 its Statements of Antitrust Enforcement Policy in Health Care. The Statements provide guidance to mitigate antitrust risks in physician joint ventures.

An over-riding policy in the Statements is the belief that the clinical or financial integration of individual physicians or physician groups will promote health care delivery efficiencies sufficient to validate the combination. Alternatively, combinations that do not entail clinical or financial integration among its constituent members—like the ORLA situation discussed above—are likely to be found lacking under a Rule of Reason approach.

Christine Varney, the Assistant to the Attorney General of the Antitrust Division of the DOJ, stated that “the touchstone of clinical integration analysis is the adoption of a comprehensive, coordinated program of care management designed, and likely, to improve quality and cost-effective care. Only that kind of program—with its emphasis on realizing benefits for consumers—justifies rule-of-reason treatment for price setting or other agreements that might otherwise be per se illegal.”

The goal, then, of any combination of anesthesia or pain care practices is to avoid a per se claim by including legitimate clinical or financial protocols to which all members fully adhere. The common protocols must be developed to streamline health care delivery in the market and promote cost savings or other pro-competitive effects. Members should invest sufficient


sIze matters: antItrust warnIng sIgns In anestHesIa grouP and PaIn grouP mergersContinued from page 9


human and financial capital in protocol development and monitoring to realize the claimed efficiencies. Members who fail to adhere to the common protocols are to be disciplined or excluded from the combination. According to the Statements, a physician network developed to collectively bargain for rates but that involves little or no integration among its physician participants is per se illegal.

Abusive Exercise of Market Power. Even if operations are integrated, a dominant market player will be seen to engage in anti-competitive behavior by bullying others with market power tactics. Thus, in April of 2010, the FTC settled an enforcement action against Boulder Valley Individual Practice Association (BVIPA), a multi-specialty IPA of approximately 365 physician members in Boulder County, Colorado. The FTC alleged that BVIPA threatened to terminate contracts with payors facing rate increases if they refused to negotiate with the physicians through the IPA, or to otherwise respond to the IPA’s demands.

In addition, BVIPA actively discouraged members from contracting with payors.

Similarly, on July 10, 2009, the FTC settled an enforcement action against Alta Bates Medical Group, Inc. (AVMG), an IPA consisting of about 600 physicians in Berkeley and Oakland, California. The FTC alleged, in part, that ABMG fixed prices and other contract terms with payors and forced AMBG members to refrain from negotiating individually with payors or contracting with payors on terms not approved by ABMG.

Exclusive Contracts for Anesthesia Services. A compelling reason to merge practices may be your merger partner’s exclusive arrangement to provide anesthesia services at one or more local hospitals. Do these exclusive dealing arrangements present antitrust risk?

The answer is that exclusive service contracts are not likely to be troublesome under antitrust law. Courts generally have upheld exclusive hospital services contracts because of the practical efficiencies offered by single-source service vendors. The beneficial effects

of exclusive services agreements include: (i) shared responsibility for effective administration, supervision and coverage of services, (ii) development of working relationships between the provider and hospital personnel and departments, (iii) assures full-time availability of services, and (v) lowers costs through standardization of procedures and centralized administration of the hospital departments.

conclusIon

Keeping antitrust issues in mind in the due diligence stage can help avoid FTC problems after closing. If the merged entity attains market dominance, it is a good idea to adopt policies to track antitrust compliance after closing. That way you may be able to obtain the most benefit in negotiating reimbursement rates for your larger anesthesia practice.

Daniel B. Brown, Esq., is the managing shareholder of the Atlanta, Georgia office of The Health Law Partners. He can be reached at (770) 804-6475 or at [email protected].

Neda Mirafzali, Esq., is an associate attorney with the Health Law Partners, PC and practices in all areas of health care law, assisting clients with transactional and corporate matters; representing providers and suppliers in health care litigation matters; providing counsel regarding compliance and reimbursement matters; and representing providers and suppliers in third party payor audit appeals. She can be reached at (248) 996-8510 or at [email protected].

Daniel B . Brown Neda Mirafzali


tHe PROMETHEUS Payment® model

dIvIdIng tHe PIe for an ePIsode of careKarin Bierstein, JD, MPH

Vice President for Strategic Planning and Practice Affairs, ABC

When physicians, hospitals, home health agencies and other providers decide to create an Accountable Care Organization or other integrated delivery system, one major issue that will soon command attention is the distribution of patient care revenues. How will the various providers share the pie? One model comes from the PROMETHEUS® Payment allocation system.i PROMETHEUS, a methodology developed beginning in 2004 by a team led by Alice G. Gosfield, Esq. and François de Brantes, M.S., M.B.A. pays providers a single, risk-adjusted payment across inpatient and outpatient settings to care for a patient diagnosed with a specific condition. The payment is based on “evidence-informed case rates” (ECRs) and is theoretically equal to the resources required to provide care as recommended in well-accepted clinical guidelines. Thus the total payment for a typical episode of care, or the ECR, is equal to:

Types of services typically involved in treating the condition

* Frequency * Price per service

A portion of the payment to each participating provider is withheld and, at the end of the measurement period, distributed based on provider performance on measures of clinical process, outcomes, and patient experience. A comprehensive scorecard measures those three variables (process, outcome, patient) at the level of the contracting provider, be it an individual physician, the group or the entire integrated delivery system. Seventy percent of the

score is based on the performance of the contracting provider, while the other 30 percent reflects the performance of all the providers involved. The dependence on team performance for the 30 percent underlines the value of coordination of care.

Withholds to Cover Preventable Complications – Or to Distribute to the Providers If There Are No Complications

Since HHS, private payers and policy makers began to focus on “Potentially Avoidable Complications” (PACs) and the PAC subset, Hospital Acquired Conditions (HACs), PROMETHEUS has provided for the withholding of a certain percentage of the ECRs for the contingency of avoidable complications. A budgetary allowance for PACs is redistributed into each ECR and is adjusted for severity, so that the ECR for a sicker patient gets a higher PAC allowance. Currently, the PROMETHEUS system holds back roughly 50 percent of the costs of treating PACs, based on the crude estimate that 50

percent of complications are avoidable. Should complications occur, this portion of the budget serves to offset the actual costs of the corrective treatment. If the physicians and other providers can reduce or eliminate the PACs, however, they can keep the entire allowance as a bonus and significantly improve their margins per patient.ii Therein lies an important incentive to continue to bring down the number of complications. Example. To illustrate how the payment and the contingency reserve might work, consider the example of the application of PROMETHEUS methodology to knee and hip arthroplasties.iii A group of researchers in Boston analyzed 2005-2006 claims from a database with a population of more than 4.5 million commercially insured persons.

PROMETHEUSProvider payment Reform for Outcomes Margins Evidence Transparency Hassle-reduction Excellence Understandability and Sustainability


Each of the two arthroplasty Episodes of Care had (1) an inpatient facility claim and (2) an “other” grouping of claims including professional services, outpatient facility charges, pharmacy, laboratory, radiology and all other types of services. Pertinent claims from both categories were further classified either as “typical” care for the index condition or as PACs, depending on whether the claim bore a potentially avoidable complication code.

All inpatient, professional and pharmacy claims for eligible cases within 30 days prior to surgery and 180 days following surgery were potentially included in the construction of the particular ECR. Eligible cases were defined by ICD-9 procedure and diagnoses codes (both for inclusion and exclusion), patient age and absence of defined conditions or major unrelated surgical procedures, as well as by continuous enrollment and complete data.

PACs for the arthroplasty analyses consisted of inpatient or outpatient claims in any of the diagnoses fields or and of claims for a procedure related to: adverse effects of drugs, overdose, poisoning, complications of implanted device, complications of surgical procedure or medical care, revision procedures, vascular catheter associated infection, septicemia, meningitis, hepatitis, fluid and electrolyte disturbances, blood incompatibility, perioperative hematoma, hemorrhage, stroke, coma, syncope, delirium, AMI, shock, cardiac arrest, air embolism, pneumonia, respiratory failure, lung complications, iatrogenic pneumothorax, tracheostomy, mechanical ventilation, acute renal failure, urinary tract infections, gastritis, ulcer, deep vein thrombosis, pulmonary embolism and decubitus ulcers. The authors of the arthroplasty study were able to construct three different paradigm patients representing increasing levels of severity of illness and corresponding case rates and hold-backs, as shown in Table 3. The first component of the withhold is a flat 10 percent of the cost of typical care. This is repaid to the providers if they meet certain quality standards. The PAC allowance consists of a fixed fee that is the same across all levels of severity ($471 using the study claims data, or 25 percent of the overall PAC allowance divided by the 2076 cases) plus 7 percent of severity-adjusted costs for each level (7 percent is half of the actual total cost of PACS associated with hip arthroplasties, i.e., 14 percent).

Potentially Avoidable Complications as Measures of Quality

The hip and knee replacement surgery study showed that “[d]istinguishing between typical care and potentially avoidable complications (PAC) creates an opportunity to hold the system accountable for the latter while holding


The Essential Elements of PROMETHEUS PaymentTABLE 1

1. Evidence-informed Case Rate (ECR)

A comprehensive packaged budget for the treatment of an illness or condition that includes all covered services related to the care for that condition, as determined by tested, medically accepted, clinical practice guidelines.

The ECR Is adjusted to take into account the severity and complexity of the individual patient’s condition.

2. Provider quality scorecard A portion of the ECR payments is withheld and later paid depending on the scores that providers earn on individual quality scorecards.

Includes a comprehensive mix of quality care metrics, such as: the provider’s performance in meeting clinical guidelines, positive patient outcomes, the avoidance of complications and the patient satisfaction.

Incentivizes clinical collaboration by making 30 percent of the score dependent on what others treating that patient for that condition have done

3. Potentially Avoidable Complications (PAC) pool

Potentially preventable deficiencies that occur in inpatient or outpatient care which cause harm yet could have been prevented through proactive care.

A PAC allowance is calculated based on the ECR – it is paid out either to offset the costs when complications do occur or as bonuses to providers

PACs represent up to 40 cents of every dollar spent on chronic conditions, and up to 30 cents of every dollar spent on hospitalizations

From RWJ Foundation, What is PROMETHEUS Payment®? See endnote ii.

# of patients

ECR-Total Costs

PAC Costs

50% available for providersif not spent on PACs

Hip Arthroplasty 2076 $47.1 million $7.8 million $3.9 millionKnee Arthroplasty 3403 $80.6 million $12.7 million $6.35 million

TABLE 2 Overall Cost Savings from Reducing PACs in Hip and Knee Surgery

Severity-adjusted cost of care

10% Margin + PAC allowance

Net Percent Allowance for Margin & PACs

Patient 1 $20,613 $3976 19%

Patient 2 $26,199 $4925 19%

Patient 3 $37,811 $6899 18%

TABLE 3 Hip Arthroplasty Case Rates and 10% Margin + Allowance for PACs


it harmless for the former.” Avoidance of complications as a quality target with an economic incentive makes good sense. Its financial value can be measured objectively (albeit sometimes with proxy measures). It is of high dollar value: according to the Agency for Healthcare Research and Quality, employers spend about $1.5 billion annually for potentially preventable medical errors occurring during or within 90 days following surgery. A single catastrophic, preventable complication can cost an individual hospital amounts in the six or even seven figures in uncompensated care and malpractice settlements or awards. Avoiding negative outcomes is a major quality marker in surgical anesthesia practice. All three of the anesthesia measures available for reporting through the Physician Quality Reporting System (timely antibiotic prophylaxis, protocol for prevention of catheter-related bloodstream infection and maintenance of postoperative normothermia) are aimed at preventing surgical infections. Many of the 26 adverse perioperative events and outcomes defined in the ASA Committee on Performance and Outcomes Management’s August 2009 Annual Report”iv (Figure 1) potentially have a measurable cost that could also be used in establishing a reserve or withhold for PACs. Caution: until satisfactory methods for risk adjustment, data analysis and trimming and other statistical techniques, and a host of other technical considerations have been addressed, these events and outcomes are not ready for use in any system that would base compensation on quality.

The Committee’s list is a valuable starting point for groups assessing potential areas for clinical and improvement and cost savings in their own practices, however. How else might we start thinking about not just the total amounts, but also the individual providers’ respective

shares of reserve funds not spent on treating complications or readmission? A simple method might be to assume that physicians account for very roughly 20 percent of spending on medical care. You might substitute the proportion in your own hospital. In Table 3 (previous

Continued from page 13

tHe PROMETHEUS Payment® modeldIvIdIng tHe PIe for an ePIsode of care

ASA Committee on Performance and Outcome Measurement

Annual Report 2009

“Perioperative Events That May Be Used To AssessPatterns of Quality in Anesthetic Care”

1. Death 2. Cardiac arrest 3. Perioperative myocardial infarction 4. Anaphylaxis 5. Malignant hyperthermia 6. Transfusion reaction 7. Stroke, cerebral vascular accident, or coma following anesthesia 8. Visual loss 9. Operation on incorrect site10. Operation on incorrect patient11. Medication error12. Unplanned ICU admission13. Intraoperative awareness14. Unrecognized difficult airway15. Reintubation16. Dental trauma17. Perioperative aspiration18. Vascular access complication, including vascular injury or pneumothorax19. Pneumothorax following attempted vascular access or regional anesthesia20. Infection following epidural or spinal anesthesia21. Epidural hematoma following spinal or epidural anesthesia22. High spinal23. Postdural puncture headache24. Major systemic local anesthetic toxicity25. Peripheral neurologic deficit following regional anesthesia26. Infection following peripheral nerve block

FIGURE 1


page), the 20 percent of the $4925 (=$985) combined total margin and PAC allowance for Patient 2 would be shared among the physicians involved in the hip arthroplasty episode—orthopedic surgeon, anesthesiologist, and perhaps the patient’s internist and other doctors who provided care during the index episode. The physicians could decide to allocate the $985 by consensus, or by a formal method such as comparing total Relative Value Units (RVUs for the anesthesiology service could be computed through a ratio of conversion factors or some other mathematical process—this is a topic for a future article). The PROMETHEUS payment model is just one possibility, albeit a well developed method. It does have the virtue of not needing to go through a provider organization or ACO. A health plan could make a single global payment to the organization for distribution,

but the PROMETHEUS model also permits each provider or physician to be compensated directly by the participating payer based on that provider’s own quality scorecard. The model can also be used within an ACO or other integrated delivery system. Although it is now more than six years old, it remains highly flexible. It is currently the focus of several pilot studies underwritten by the Robert Wood Johnson Foundation. Quality-based payment for anesthesia services within a group, an ACO, or other more or less integrated organization is not circumscribed by any established methodologies. One alternative to the model presented above, for example, would be to start with an allocation method based on the proportion of net revenues from professional anesthesia services as compared to other physicians’ services and inpatient/medications/supplies/OR time and other OR charges/procedures/anesthesia. The requirements for participation in Medicare’s future Shared Savings program as an ACO are very vague (anticipated federal regulations giving more shape to the above requirements of the Affordable Care Act had not been published as of the date that this issue of the Communiqué went to print). To be eligible, an ACO must:

•Bewillingtobeaccountableforthequality, cost, and overall care

•Participate intheMedicareSharedSavings Program for at least 3 years

• Havetheappropriatelegalstructure•Have a sufficient number of

professionals

• Provide specific information to theSecretary of HHB

• Maintain a management structure including clinical and administrative systems

• Adoptaprocessfor:– Promoting evidence-based med-

icine and patient engagement– Reporting on quality and cost

measures, and– Coordinating care

•DemonstratetotheSecretarythatitmeets the patient-centered criteria.

The future regulations will be another tool in our growing understanding of how anesthesiologists might steer and thrive in ACOs and other organizations that reward coordinated care and measurable quality achievements. We already have the PROMETHEUS payment model and the resources on the PROMETHEUS website (www.prometheuspayment.org); the data that many anesthesia groups’ and hospitals’ information systems contain; practical experience that you may already have with private sector integrated health care systems, and your creativity—as well as ours. Comments on the ideas in this article are most welcome. We hope to be working with you on ACO and other shared savings strategies in the near future.

i de Brantes F, Rosenthal M., Painter M. Building a Bridge from Fragmentation to Accountability – the PROMETHEUS Pay-ment Model. N. Engl. J. Med. 2009; 261:1033-1036 (September 10, 2009).

ii Robert Wood Johnson Foundation, What Is PROMETHEUS Payment®? An Evidence-Informed Model For Payment Reform. Available at http://www.rwjf.org/files/research/prometheusmodeljune09.pdf <Accessed January 11, 2011>.

iii Rastogi A, Mohr B, Williams JO, Soobader MJ, de Brantes F. PROMETHEUS Payment Model: Application to Hip and Knee Replacement Surgery. Clin Orthop Relat Res. 467(10): 2587-2597.

iv American Society of Anesthesiologists, Annual August Report of Committee on Performance and Outcomes Measurement, August 23, 2009. http://aqihq.org/CPOM%20Registry%20Data%20Set.pdf <accessed January 13, 2011>.

Karin Bierstein, JD, MPH, serves as Vice President of Strategic Planning and Practice Affairs for ABC. Ms. Bierstein came to ABC from the American Society of Anesthesiologists in 2007. She concentrates on ABC’s partnerships including those with ePREOP and Surgical Directions and serves as a Medicare and healthcare reform expert. She can be reached at [email protected].


The average pre-deal predictors of anesthesia group merger or acquisition success are, well, average. Economies of scale, increased opportunities, greater profits! If life, even business life, were just so simple. Having worked with countless groups, both within and without the specialty of anesthesia practice, on mergers, acquisitions and other affiliations, it’s obvious that there are other key predictive indicators as well. This article focuses on one of the most important soft, that is, non-dollar, indicators: the impact group culture has on the likelihood of success of the combined venture. Any merger, acquisition or affiliation that does not take into account the variance between the cultures of the constituent groups is doomed, at a minimum, to trouble, and much more likely, to failure. It’s possible to discuss anesthesia group culture from several perspectives. For example, we might view group culture organizationally, socially, or psychologically. But if you allow me to assume that you’re like my clients, I’ll discuss it from the perspective of success. I’ll provide a model for your use in gauging the success culture of anesthesia groups that you can use to assess the likelihood that a group merger, acquisition or affiliation will succeed. That model is The Four CirclesTM.

tHe four cIrcles

Far from even being benchmarked to best practices, most anesthesia groups are

mired in mediocrity. Let’s be clear about something from the start: I’m not addressing mediocrity in terms of medical competence; rather, I’m addressing the fact that most group leaders, in fact nearly all of their owner-physicians, spend so much time working in their group’s business (that is, practicing within the medical specialty of anesthesiology), that they devote little, if any, time and effort to working on their group’s business. I’m not exaggerating when I say that most anesthesia groups exist only because of a contractual relationship with one hospital. That’s not a plan for business success – it’s simply failure on the installment plan. Having represented anesthesia groups as well as other hospital-based groups over three decades, it has become strikingly clear that there is a success-culture that distinguishes the most successful groups, what I term Strategic GroupsTM, from the great majority of the mediocre. In fact, I have come to realize that there is a way of ranking groups based

on their culture from the most reactive to the most strategic. I call this ranking The Four Circles.

wHere does your grouP fIt? wHere does your collaboratIon Partner grouP fIt? The first step in the process is to know where your group fits within the hierarchy of The Four Circles. Of course, this requires that you tell the truth. The second is to use it as a tool to measure the cultural level of your proposed merger, acquisition or affiliation partner. The process also provides two significant other benefits: The Four Circles can be used by a group actively seeking a collaboration partner, for example, a group seeking an acquisition target, as a filter to identify high potential targets. Lastly, and importantly, it can be used by your group as a stand-alone tool, in the absence of any interest in an affiliation of any kind, to move itself

grouP to grouP: tHe ImPact of organIzatIonal culture

Mark F . Weiss, Esq .The Advisory Law Group, Los Angeles, CA

STEP 1


from a low level of success culture to a higher one. In each of the following four sections, we’ll explore the culture of groups at each of the Four Circles levels.

tHe reactIve grouPTM

A Reactive Group exhibits many of the following key cultural characteristics:

• It exists only as a matter ofconvenience to further each of its individual physician’s goals.

• It has little, if any, organizationalstructure beyond the rudiments required by law, and even those formalities are rarely followed.

• The relationship among itsmembers may or may not be civil but the mindset is definitely “what’s in it for me?” not “what’s in it for us?”

• The group is entirely reactive toits circumstances in respect to the hospital, competition, referral sources, and the medical staff.

• Itssolepurposeforexistenceistoprovide services at a hospital—if that hospital no longer wanted to obtain those services from the group, it would have no reason to exist.

• Their services are completelycommoditized. There is virtually nothing that distinguishes their services from any other group of

providers within their specialty.

In many respects, a Reactive Group is worse than no group at all. That’s because a group in the reactive stage provides a false sense of security to its members, even though they are involved, to a large degree, in self delusion. Reactive Groups are, in large part, a vestige of the system that existed in and prior to the early 1980s. During that time period, most anesthesiologists practiced independently of any group. The only linkage among them was that they shared membership in the medical staff department. Each physician was in business for him or her self. There was no vehicle for contracting in common or for carrying on any business in common. With the onset of managed care and then its further market penetration, there became a need for anesthesiologists to coordinate contracting with those payors, and, accordingly, to tie together their business operations. Equally important as the need to contract together was the need to avoid being viewed as conspiring with one another in violation of antitrust laws designed to prevent price fixing collaboration. These pressures forced independent practitioners, who otherwise were content to continue to be independent, to form group practice entities. However, because of their history of independence combined with their distrust of their former competitors, they tended to form entities which met the minimum standards required to be able to contract together. These groups lacked any real business engine—they were marriages of convenience only. Although technically bound together, each member continued to desire to “eat what he killed” or, rather, billed, not simply in the sense of work units, but in the sense of the reimbursement that matched those units. Obviously, that was a problem from an

antitrust standpoint in that the group was required to be totally financially integrated; however, the pre-group mindset of fighting not only over cases but over cases that provided high levels of reimbursement, continued unabated. Some of today’s Reactive Groups are the linear descendents of those early shotgun marriage groups—in those cases, there’s been little, if any, evolution in the business DNA of the group. Other Reactive Groups, although formed much more recently, often result from instances in which the impetus for group formation came not from the members themselves, but from pressure from the hospital to form a group. Although the reasons for formation were different than those that spurred the original, historical Reactive Groups, the result is the same: a number of department members being forced to “live with one another” although that is not their first, second, or perhaps even third choice, independence being the desired business non-structure. Stories abound of the strange interaction among members of purely Reactive Groups. For example, among some of my own 1980’s Reactive Group clients, there were incidents of one group member brandishing a gun in an argument over the allocation of cases, fistfights and shouting matches among group members were common, and bizarre behavior, such as acting out by regularly exiting the doctors’ parking lot by driving through the bushes, not out the driveway. The obvious indicator that one is dealing with a Reactive Group is the fact that its members are clearly out for themselves, and themselves alone. They tolerate their colleagues as necessary, but that’s about it. Accordingly, they do not work together on any planning outside of their one facility arrangement. It is likely that


STEP 2


they even view their entity as existing solely at the convenience of the hospital; if the hospital did not renew their exclusive contract there would be no further need for the group and, other than the fact that there would be an impact on a member’s income stream, he or she would not particularly care — they would simply find another relationship somewhere else. Lacking any desire to do any business planning, these groups are purely reactive to events that happen to them, whether at the hand of the hospital or of competitors. Additionally, because each member views what he or she does as essentially being for his or her own benefit, there is no coordination in respect of providing any level of service above the bare minimum. The group members do nothing among themselves to coordinate any level of delivery of service other than can be managed by a medical staff department. A Reactive Group simply is, and that’s it.

tHe grouP In eQuIlIbrIumTM

The next stop in the culture ranking of hospital-based groups is the Group In EquilibriumTM. A Group in Equilibrium exhibits many of the following key cultural characteristics:

• It exists primarily to furthereach of its individual physician’s goals although there is some understanding that they must band together as a group in order to compete – in essence, it is a “club” with members sharing at least one common goal: keeping others out.

•The group follows the minimumrequired formalities to protect its structure from legal attack.

•The group members have moreor less civil relationships among themselves. They understand, to a certain degree, that fulfilling their individual objectives requires that they align themselves with others.

•The group engages in a low levelof planning as to its very short term future, chiefly in respect of scheduling matters. For the most part, it is reactive to all circumstances outside of its easily accomplishable, immediate concerns.

• Itssolepurposeforexistenceistoprovide services at a hospital — if that hospital no longer wanted to obtain those services from it, it would have no reason to exist.

•Their services are commoditized.There is little that distinguishes their services from any other group of providers within their specialty.

The members of a Group In Equilibrium, like the members of the groups one level lower, the Reactive Groups, are guided by a sense of their individual, rather than their group’s best interest. They do, however, understand that it is necessary for them to come together with their colleagues in order to fulfill their individual destinies. Accordingly, there’s generally cordial interactions among group members in

the sense of colleagues rather than true partners. Just as members of a club understand the need for the club’s continued existence, the physician owners of a Group In Equilibrium have a similar interest in their entity’s continuation. Success, on the other hand, is not measured at the group level, but only on the individual level. “How much did I make this year?” is the driver, not “how can the group do better next year?” Take for example, the small anesthesia group which attracts a subspecialty trained member and compensates her on a fixed monthly basis while all of the other members of the group are compensated based upon their production. Although it later becomes apparent this shareholder’s fixed salary is $50,000 a month, in return for which she does one or perhaps two cases a day, five days a week and is generally home by noon, is a tremendous drag on the group’s finances, yet she resists all suggestions that she should devote a portion of her time after lunch to income generating activities on behalf of the group. There is little to no planning done for the group’s future. The minimum legal formalities are followed in order to preserve the existence of the group, but, as it’s viewed by its owners as a vehicle for individual, not collective or entity achievement, planning for the group’s future, at least beyond the next year or so, is seen as unnecessary. In fact, those who suggest it are often ridiculed as dreamers. Comments from group members that “the hospital pays a stipend so they really own us” are not uncommon and are rarely challenged. Unfortunately, the great bulk of anesthesia groups operate at the equilibrium level. They do what is necessary to keep the group afloat,

grouP to grouP: tHe ImPact of organIzatIonal cultureContinued from page 19

STEP 3


preventing themselves from sinking, but doing nearly nothing to distinguish themselves in terms of a future separate and apart from the facility (usually one, not more) that they “serve.” If that facility awarded an exclusive contract to another group, the Group In Equilibrium would disband, as it has no existence separate and apart from its relationship with that facility. Instead of being seen as a deficiency, most physician owners of Groups in Equilibrium see this lack of real business existence as a fact, and not a sorry one at that, because their primary interest is in their own success disconnected from the group’s, membership in which they simply tolerate. On a business level, these groups suffer from the evils of benchmarking, having benchmarked to the leaders in the industry, who are, at best, practitioners of business mediocrity. Their practice skills may be at or better than national standards, but their services are still commoditized in the view of patients, many colleagues, payors, and the hospital.

tHe focused grouPTM

The Focused GroupTM represents a dramatic shift in the success culture continuum. It exhibits many of the following key cultural characteristics:

• It exists to further the group’s

immediate and midterm goals although group members are also free to pursue their independent goals within the practice specialty outside of the group.

•The group follows the requiredformalities to protect its structure from legal attack.

•The group members have goodrelationships among themselves, understanding that fulfilling their individual objectives requires that they align themselves with others.

•Thegroupengagesinahighlevelofplanning as to its short and medium term (6 months to perhaps a year) future. It has no understanding of the interrelation among the internal and external instances and events affecting the group and its relationships and remains largely reactive to all circumstances outside of its easily accomplishable concerns.

• Itschiefpurposeforexistenceistoprovide services at a hospital — if that hospital no longer wanted to obtain those services from it, it would have little reason to exist as its outside work is not sufficient to enable it to remain in business.

•Their services are commoditized.There is little that distinguishes their services from any other group of providers within their specialty.

As opposed to the groups lower in the chain, the Reactive Groups and the Groups in Equilibrium, the members of a Focused Group understand that the group exists to further the group’s goals. For the first time in the cultural continuum, the physician members of the group understand that their self interest is furthered by aligning their individual futures with the group’s. The fact that group members subsume their individual interests to the group’s, the scope of this alliance between

individual members and the group has a clear boundary: What is in the group, professionally, is the group’s; but there is an understanding that individual members may pursue, for their own account, professional opportunities outside of the group. This is more than simply “moonlighting,” it extends to the notion that group members may devote time to pursuing active business opportunities, even ones immediately geographically proximate to the group, for their own benefit. The Midland Group (not its real name) provides anesthesia services at three hospitals in a Midwestern urban locale. The group is fully integrated financially, has strong leadership, and the group’s members cooperate among themselves to a very high degree. One of the group’s senior members, Dr. Jones, together with a friend from another anesthesia group across town, opens a medi-spa in a shopping center a few blocks away from the campus of the hospital. The medi-spa recruits nurses from the hospital, both as prospective employees and as prospective customers. Although this puts pressure on Midland’s relationship with the hospital, Dr. Jones asserts that he has every right to pursue his own interests outside of the group’s schedule. The other members of Midland, including its managing members, do not disagree. Importantly, the organizational structure of Focused Groups goes well beyond that simply necessary to preserve the entity’s existence pursuant to applicable state law. These groups have somewhat sophisticated management structures through which group members devote some time and effort to group management and planning. However, planning is generally limited in scope to the group’s short and intermediate future, from two or three months out to perhaps, at the maximum, a year.

STEP 4



The defining, and retarding, characteristic of this planning is that it is additive: improvement is seen as tied to, and built upon, existing conditions. In other words, there is a notion of the need for incremental improvement but there is no understanding of the concept of a truly transformative future. This extends to the scope of business activities, flowing from the clearly understood limits that activities outside of the group’s immediate scope is left to the members, not to the group itself. Therefore, there is no mature concept on the group level of pursuing new opportunities. Accordingly, Focused Groups generally remain single-facility focused. And, as is the case with Reactive Groups and Groups In Equilibrium, if the group’s relationship with that hospital ended, the group would have little, if any, reason to continue to exist. It also extends to the scope of service quality: although it might be “cutting edge” in terms of professional expertise, it remains sorely lacking in terms of any understanding of what is required to break out from perception as a commodity provider.

tHe strategIc grouPTM

From the perspective of success, Strategic Groups are the most developed.

A Strategic Group exhibits many of the following characteristics:

• Itexiststofurtherthegroup’slongterm goals.

• The group follows the requiredformalities to protect its structure from legal attack.

• The group members have welldeveloped, positive relationships among themselves, understanding that they will maximize their long term interests by maximizing the group’s interests.

• The group engages in high levelstrategy as to its short, medium and long term future. Although it remains flexible in order to deal with the inevitable surprises, it actively strategizes and deploys tactics to influence its future.

• Itschiefpurposeforexistenceistodevelop its business for the profit of its owner physicians and, as such, does not see its existence as necessarily tied to the existence of its relationship at any particular hospital.

• The way that their services aredelivered is unique. Although it may well be that there are many other providers of their specialty services within the area, the overall combination of the way that the group delivers those services and the experience that they provide to the facilities, to the other members of the medical staff, to their patients, and to the community at large, has created an experience monopoly that competitors, even if they understood what was being provided, would not be able to duplicate.

The scale of growth from Focused

Group level to Strategic Group status is logarithmic — it represents a transformational change in the makeup of the group. A Strategic Group exists to further the group’s goals. Its owner physicians understand that the group’s short, medium and long-range goals outweigh their individual interests but, at the same time, understand that the tremendous value created by accomplishing those goals maximizes their own self interests. All professional activities on the part of the owner and nonowner physicians are rendered through, and on behalf of, the group. There are no outside anesthesia-related business activities and, in almost all instances, no outside business activities of any sort, save purely passive investment interests unrelated in any way to the practice of medicine. In a very real sense, there is no longer any notion of duality — group and owner physicians are united, not opposed. Although there are differing governance structures, for example strong-leader structures and board/officer structures, Strategic Groups have concentrated authority. There is a clear understanding of the difference between the ownership interest that each member has and the management power which is confined to as small a group as possible. Strategic Groups are not hindered by the “consensus disease” that prevents most groups, even those at the Focused Group level, from achieving phenomenal success. In addition to overseeing day-to-day management, the group’s leaders devote significant time and effort to planning for the group’s short-term future as well as to strategizing in respect of the group’s medium and long-term future. Strategy differs from planning in that it is not a process of incremental growth; rather,

STEP 5



is a process of envisioning a future and then using the leverage of that goal as if it were a magnet to pull the group toward its much greater envisioned result. Inherent in this strategic management is an understanding that nearly all aspects of the group and its activities impact upon its future and, therefore, they can be manipulated to achieve the group’s goals. Consider the following example:

Garden City anesthesia group provides services at multiple facilities.

Through an ongoing, intra-group program of tracking case data by surgeons, case type, payor-class, and reimbursement, the group is able to track and trend both individual surgeons as well as participation in various hospital service lines. When this continuous data analysis revealed that one of the facility’s new programs was resulting, for the group, in an overwhelming number of charity cases, the group formulated a strategy to deal with both the immediate situation as well as to achieve other goals. The group then developed interrelated tactics to implement each of the strategic thrusts.

For example, among the group’s concerns were, of course, the financial cost to the group of unintended additional charity care. The data developed by the group demonstrated that the hospital’s new service line was working to incentivize the participating surgeons to actually seek out low to no-pay cases. Better reimbursed cases were being crowded out of the schedule. Therefore, this required a strategy to either obtain significant financial support in return for continued participation in the new service line or to limit or kill the new service line. At the same time, the issue of financial support in respect of the service line intertwined with the larger issue of protecting the group’s current level of financial support from the hospital. We designed a multi-pronged initiative which included published studies, press releases, in-person meetings with administrators and other influencers including those surgeons whose profitable cases were being cancelled or delayed. Of course, the political support developed though this effort will be of value not only in respect of the instant, charity care service line, but also in terms of increasing

leverage in respect of the renewal of its exclusive contract with continued large financial support. Strategic Groups increase leverage in other ways as well. Strategic Groups understand that simply being wedded to providing services at one facility creates the perception, the entirely correct perception, in the mind of the hospital’s administrators that the group’s mere existence hinges upon the successful renewal of its exclusive contract. As a result, the hospital’s bargaining strength is dramatically increased. As a result, Strategic Groups actively develop relationships with multiple facilities. When this strategy is fully developed, the group can simply walk away from a proposed new or renewal facility contract that does not meet its criteria. Lastly, Strategic Groups develop significant time, resources and training to assure that they create an experience monopoly which is branded to the group. Although there are other anesthesia providers in the area, the overall combination of the way that the group delivers those services and the experience that it provides to the facilities, to the other members of the medical staff, to its patients and to the community at large, has created an experience monopoly that competitors, even if they understood what was being provided, would not be able to duplicate. As a result, the group becomes the only logical choice to provide services at the facility. It has broken free of the bounds of commodity status.

wHy four cIrcles analysIs Is crucIal

Note that few groups fit nicely within a specific Four Circles category. Most groups have a foot in each of two neighboring levels of group culture.



Understanding these cultural distinctions is vital to the success of any planned consolidation of anesthesia groups. Any merger, acquisition or affiliation that does not take into account the variance between the cultures of the constituent groups is doomed, at a minimum, to trouble, and much more likely, to failure.

Consider the following example: Your group of seventy eight anesthesiologists, let’s call it Unified Anesthesia of Catalina, primarily exhibits the traits of a Strategic Group. It provides services at four facilities. It has strong leadership through a small management committee and an empowered managing partner. The group has developed and communicated a strategy for its long term future. All group action is filtered though that strategy. Unified operates on an entirely unified basis, one element being a compensation plan that applies across all locations and practice subspecialties. Unified has identified the opportunity to provide services at a community hospital approximately 20 miles distant. It’s presently served by a group of twenty anesthesiologists, sixteen of whom are partners in the “Main Street Group.” Main Street’s lead partner approached

your group interested in merging Main Street into Unified in order to, as he put it, “achieve economies of scale.” Through your initial due diligence, you learn that on an organizational level, Main Street’s partnership operates on consensus basis. They have not held a partnership meeting for years, with close to total agreement among the partners required before any action is taken. Although the partners have very cordial relationships, it’s clear that “votes” (actually veto power) in this sense are based on what’s best for the individual partner. They have engaged in very little planning, even in respect of their exclusive contract with their facility, which has a one year “evergreen” term that they’ve simply allowed to roll over for the past eleven years. Six of Main Street’s partners also work at several surgery centers in the area (and demand control over their hospital schedule in order to do so) – they work at those ASCs independently of the group and of each other, yet they traded off of their affiliation with Main Street in obtaining those opportunities. Main Street is, at best, a Group in Equilibrium. In evaluating this merger opportunity, you must consider the difficulty of transitioning Main Street’s partners

into Unified’s governance, scheduling, and compensation model structure. Is it even possible? Would Main Street’s partners be granted a transition period to conform, including transferring all of their practice activities into Union, and if so, how would granting it impact existing relationships within Unified? What if they never conform? Could Main Street’s physicians ever successfully be moved into positions at other Unified facilities or would they “infect” its operation? Those are simply a few of dozens of similar, and dissimilar, issues that must be considered in respect of the cultural aspect of the potential merger. Of course, there are also many other facets of merger analysis. The key point of this article is that the level of culture development success within your group and within any potential merger, acquisition or affiliation partner is at least as important as any other factor of merger analysis. In fact, even if the “numbers” are right, even if there are tremendous “economies of scale,” attempting to combine groups of widely varying Four Circles ranking is an extremely difficult, if not impossible, undertaking.

Mark F. Weiss, Esq. is an attorney who specializes in the business and legal issues affecting anesthesia and other physician groups. He holds an appointment as clinical assistant professor of anesthesiology at USC’s Keck School of Medicine and practices nationally with the Advisory Law Group, a firm with offices in Los Angeles and Santa Barbara, Calif. Mr. Weiss provides complementary educational materials to our readers at www.advisorylawgroup.com. He can be reached by email at [email protected].




For the last several months the literature on Accountable Care Organizations (ACOs) has flourished. So has the volume of workshops, seminars and webinars, all with the intent of educating providers on what the future will look like, and many addressing how physicians might participate. Independent anesthesia groups are trying to not only understand the ACO rules but are also working hard to determine how they will function in any of the possible structures that emerge in their communities.

There are various traditional obstacles to the formation of multispecialty groups, such as those posed by the antitrust and antikickback laws. The Patient Protection and Affordable Health Care Act calls upon the Secretary of Health and Human Services (HHS) to adopt regulations that will foster the development of ACOs, and that includes resolving potential conflicts between the antitrust, antikickback and Stark laws and the efficiencies expected to result from the formation of ACOs.

Given that ACOs will emerge, anesthesia groups will need to be prepared to decide with whom to align themselves. In some medical communities there may already be some partnerships due to pre-existing relationships.

Independent Practice Associations (IPAs) typically encompass all specialties, but an IPA can be limited to primary care or another single specialty. IPAs can be formed as LLCs, S corporations, C corporations or other stock entities. Their purpose is not to generate a profit for the shareholders, although this can

be done. The IPA assembles physicians in self-directed groups within a geographic region to invent and implement healthcare solutions, form collaborative efforts among physicians to implement these programs and to exert political influence upward within the medical community to effect positive change.

The legislation allows for other types of structures to implement the health care delivery models. These include the:

• PHO (Physician Hospital Organization), a joint venture between one or more hospitals and a group or groups of physicians. The PHO acts as the single agent for managed care contracting, presenting a united front to payers. In some cases, the PHO provides administrative services,

credentials physicians and monitors utilization.

• MSO (Management Services Organization), a freestanding corporation that is owned by a hospital or PHO. It provides management services to one or more medical practices and serves as a framework for joint planning and decision making. Often, the MSO employs all non-physician staff and provides administrative systems, in exchange for either a flat fee or a set percentage of group revenues.

Then there are groups that have developed agreements between IPAs and PHOs to set up risk sharing arrangements.

wHere do we fIt In tHe alPHabet souP?

Moe MadoreVice President for Practice Management, ABC


Where Do We Fit in the AlphAbet Soup?Continued from page 23

The common theme from these will be to set up measurable and attainable quantitative and qualitative patient and fiscal goals.

The goals of an ACO should include

• Ensuring integrity infederal health care program participation

• Promoting economy andefficiencyinprogramoperations

• Promoting positive patient careand outcome

The incentive to participate in an ACO is based on meeting qualityperformance standards (yet to bedetermined) and sharing in the cost savings (yet to be determined). Forproviderstheabilitytoprovideahighlevelofcare,reducecostbyeliminatingwasteand continue to be paid fairly soundslike an admirable goal. The challenges within the ACO will include how the various groups are compensated and also how individuals will be compensated.

The revenue earned will be distributed tospecialistsandprimarycareprovidersand,insomecases,hospitals.Thetypeoforganization will influence the formulas used and will ultimately determinehow this restructuring will impact each anesthesiologist’s compensation. Will the budgeted savings materialize? How will the bonuses be distributed among theproviders(facility,surgeons,primarycare, and anesthesiologists)?

Oneconcerniswhathappensifyourgroup has worked with a health care system and has already achieved someimprovements—will the new baselines established take these into consideration? Another area of concern is how non-physician revenues (Hospital) will beallowed to flow to physicians withoutsome changes in current legal barriers. Every group will need to assess

its position in the health care deliverysystem in its community anddeterminewhatkindofopportunitiesmayexist.Therealityisthatthisshiftispartofpaymentreform trendandyouwill be judgedonyour ability to participate in a patientcentered, physician-led health caredeliverymodel.Eachgroupwillbeaskedtodecidewhoyouwillpartnerwithandwill that mean aligning with a hospital or multiple facilities, largergroupsorIPAs.Whatwill be the right structure for youandyourgroup?

There are some key points that youshouldalwaysevaluateastheopportunitiespresent themselves. When the goal is to reduce cost, does that translate into reducing the income to providers or to eliminate overhead cost? Who will be making decisions? Does the structure have physician involvement in key decisionsor will these be left to the newly-formedmembers who may not be physicians?

What kind of support staff does the new entityhave?Lookforprojectedreductionsthat may or may not be realistic whenmeasuredagainstyourexperienceasthesemay not meet the objectives which willrequire changes in other areas. One area requiring anesthesiologists’ attentionmaybe the forecasted volumes, productivityand number of locations (OR rooms and facilities). If these numbers are overstated, the impact will affect the income and lifestyles of all involved. Lastly, a groupmust understand the legal barriers that currently exist in a plan if non-physicianrevenue (hospital revenue) is to be shared. The alphabet soup is part of the health care system. The challenge is to becomeeducatedand review the informationyougainwithtrustedadvisors. Ourobjectiveis to keep you apprised of changes andclarifications to the rules as they emerge.Inthemeantime,staytunedtotheeffortsin your community and ask questionsabout structure, membership, paymentsystemanddistributionof shared savingsas these willimpactyourcompensation.

Maurice (Moe) Ma-dore, MBA, CPC, serves as Vice Presi-dent of Practice Management for ABC. Mr. Madore has over 20 years of experi-ence in the healthcare field and business administration; including operations of billing centers, management, strategic healthcare planning, business financial planning, marketing new business de-velopment and physician recruiting and practice management. Prior work experi-ence included 6 years as a Vice President of Medical Affairs at a regional medical center in Maine. He can be reached at [email protected].


IntroductIon

“Action and reaction, ebb and flow, trial and error, change — this is the rhythm of living. Out of our over-confidence, fear; out of our fear, clearer vision, fresh hope. And out of hope, progress.”

– James Levine

Sometimes we wonder if there is tru-ly a rhythm to life, but one thing is more certainly true, and that is that change happens. When it does happen, the piece of change called ‘transition’ can be the hardest part. In business, the transition period accompanying mergers and acqui-sitions often provides more of a cacoph-ony than a melodious and smooth tune; harder to follow the notes and definitely difficult to put to an instrument and play. Those who have gone through a merger or acquisition may recognize some of the learning points that follow. We will dis-cuss here communication, cultural blend-ing, fear of the unknown, technology im-pact, human resource policy and organi-zational approach. This is a smattering of the lessons learned during the acquisition of Associated Anesthesiologists, Inc., by Anesthesia Business Consultants, LLC, undertaken late in 2007.

communIcatIon

In the beginning“The void created by the failure tocommunicate is soon filled with poison,drivel and misrepresentation.”

–C. Northcote Parkinson

Tell as much as you can, to as many as you can, as soon as you can. During a transition you cannot possibly over-communicate. Define what is changing and what is staying the same, why is this change necessary and what is to be gained. This is key to directing energy and angst from the fear of change to what really is changing and to provide a sense of security. We humans are all creatures of habit and tend to become anxious and fearful when too much changes too quickly. Individuals take in and process information at differing levels. It’s important to remember individuals

respond to the change and make their peace with it based on their ability to let go of the old status quo and accept the new. Keep a close tab on the pulse of the membership and quickly respond to any underlying current of uncertainty or anger. Left unaddressed, anger and discord will breed among the membership and spread like wildfire. Individuals aren’t necessarily looking for a quick fix, more they are seeking acknowledgement of their feelings and to be heard. These feelings and reactions are normal as individuals deal with the impact of the change on their individual circumstance.

busIness consolIdatIons: lessons learned durIng tHe acQuIsItIon

of assocIated anestHesIologIsts, Inc., by anestHesIa busIness consultants, llc

K .D . Lowe, MHSASenior Vice President, Western Region, ABC



During Change

“It’s not so much that we’re afraid of change or so in love with the old ways,but it’s that place in between that we fear…It’s like being between trapezes.It’s Linus when his blanket is in the dryer. There’s nothing to hold on to.”

– Marilyn Ferguson

You are going to have to maintain communications with all involved—not just to pass on new information, but to keep them feeling connected to the organization. Don’t be surprised at over-reactions. Again, different temperaments move through the change continuum at different speeds. For instance the leadership or planners of the transition started their transition first. These individuals will move through the transition at a much more rapid pace than those members of the rank and file. The further down the line away from a decision maker, the greater individuals feel the sense of loss, uncertainty and powerlessness. To counter this, ensure individuals get all the information they need; say everything more than once in several different ways, using different channels to do it and keeping the communication focused on managing endings. Be creative and informal—be available for the quick check-in over coffee or grabbing lunch. Offer to host a Question & Answer session. The greater your ability to reassure and respond to information the quicker your membership will process and adapt to the new world.

Ending“All changes, even the most longed for, have their melancholy: for what we leave behind us is a part of ourselves: we must die to one life before we can enter into another.”

– Anatole France

Loop back to the goals and the purpose for the change. Did we successfully meet the goals set? Review any remaining issues or group concerns. Prioritize and create an action plan. Check in with individuals to see how they are doing. Celebrate successes, even the small ones, along the journey.

IntegratIon

“It’s nothing personal, it’s just business!” – Mario Puzo

It is ironic that in the seemingly sterile business environment of mergers and acquisitions great value is placed on the integration of business processes. Clichés may run rampant as we tend to put high value on keeping things “all business.” In reality, business is very personal. Human relationships, abilities to learn and the personal aspects of relationship-building play an integral, even critical part in the success of a business. Therefore it makes good business sense to give significant

attention to addressing the human aspects of a merger. In an effort to integrate business process, it is absolutely necessary to address the reality of integrating business cultures. The challenge is in:

• Blending two distinctly differentcorporate cultures

• Facilitating the creation of ahybrid corporate culture through true and focused cross-pollination of best practices within both organizations

• Overcoming limitations thatgeographical boundaries impose on teaching and learning in a new structure

Not Simply a Business TransactionAs two companies merge operations, a companion integration of different business values, cultures and workforces is paramount to coming out on the other end of the merger with one cohesive work unit. The blending of two well-established corporate cultures is easier said than done.

Cross Pollination - Keeping the Best of Both Worlds

It is easy to forget in the process of merging, that the acquiring entity valued what the acquired entity had to offer in some form or fashion. Therefore, to achieve the best outcome of the acquisition, the goal has to be to take the best of both worlds to create a superior hybrid of both the acquired and the acquiring company.

Geographically Imposed Limitations – Meeting in the Future, Living in the Past

“Teamwork doesn’t tolerate the inconvenience of distance.”

– Unknown

busIness consolIdatIons: lessons learned durIng tHe acQuIsItIon of assocIated anestHesIologIsts, Inc., by anestHesIa busIness consultants, llcContinued from page 25

Working in different time zones and across vast geographical distances requires flexibility from all parties and the use of creative methods for communication and teaching. Time and distance aren’t the best catalyst for effective communication or efficient operational function, let alone successful employee training on new processes, procedures and systems.

Recommendations To address the challenges time and distance present and to achieve the best of both worlds through cross pollination and blending of cultures, here are a few lessons learned:

Flexibility is critical — Ensure that people on both sides of the knowledge transfer understand the time zones and work schedules of the people involved. Develop opportunities and schedule meeting times that make sense for all parties. Agree on a time window for joint business actions and make sure that transfer of knowledge and work processes, important decision making meetings and communications are coordinated to occur in that timeframe. Documentation is critical — In all cases when meetings occur, have someone take minutes and assign action items. Then these minutes can be shared, used for clarification of decisions that were made and built upon to facilitate progress in future related meetings.Relationship building is critical — Connect subject-matter experts to their counter-parts on the other side

of the merger. Knowledge transfer extends beyond the typical transition of data and information. If data and information were all that mattered, one massive manual documenting all of the information that people needed to know would suffice. However, knowledge transfer involves human beings and learning styles must be addressed. In addition to the trading of information, the knowledge transfer must also accomplish a common understanding of the scope of business processes, organizational structures and other “tribal knowledge” about the way things really get done in an organization. Once the knowledge holders are identified:

• Convey a commonpurpose forthe interaction on both sides of the transfer.

• Provide structure for theinteraction.

• Identify the responsible partyfor documenting processes and information that is shared between subject matter experts.

• Encourage the use of a variety

of interactive techniques, for example:

• Mentoring—partiesonbothsides of the merger have something valuable to teach the other

• Guidedexperiences•Workshadowing

Checking assumptions and clarifying understanding is critical — The “language” or vernacular of each organization differs. One simple example is that Job Titles that sound similar may represent vastly different functions. One organization’s Administrative Assistant to the VP of Operations, could be the other organization’s Assistant Operations Manager. Match the right people up with their correct counterpart. In general, it is good advice to question meaning and clarify intent even more so than in normal business situations.Creating a Feedback Loop is critical — Ensure a continuous feedback loop between parties for all of the above. It is not enough to show someone




how to perform a specific task, once. For the knowledge transfer to be a success, there must be a feedback loop that provides clarification and refinement of the information received.

Fear of the Unknown“Only the unknown frightens men. But once a man has faced the unknown, that terror becomes the known.”

– Antoine de Saint-Exupery

A transition from one thing to another inevitably leaves people dealing with the fear of the unknown. A lot of this fear is related to new management. It can be particularly disconcerting when management changes from local control to management at a distance. It is very difficult at first to learn to operate under a management team that is virtually unknown to the staff. One may not see them; and may not know them. Although it may be more difficult to build a relationship via email and phone than

it is in person, the effort is well worth it. Staff who build partnerships with counterparts that operate at a distance must, at the same time, see themselves as being part of a larger, even global picture, versus a separate self-standing unit. As staff learns to work under the new leadership they may experience a certain loss of control. They are no longer able to simply make decisions based on the needs of their stakeholders, but have to learn to integrate all of those needs using the new organization’s model and new company policies. In the beginning, there may be a tendency of some to have the opinion, “This is the way it has to be done because this is the way we’ve always done it.” It becomes necessary to take a good, hard look at some processes and determine if they should be kept, changed completely to the new model, or modified to meet the needs of stakeholders while simply adhering “more closely” with new processes and policies. Staff and management have to work together to identify the best way to

meet stakeholder needs and then partner within the new structure to make it happen. The budding partnership between the former companies will continue to grow and flourish only to the extent that the fear is dissipated, new knowledge applied and the birth of a new organizational structure accepted. In addition to all that goes on before and during the transition, some employees also may feel fear at more than just change and loss of control, but also the unknown surrounding job security. There will usually be a period of time where many wonder whether or not they have a future with the new organization, or if the changes might mean a change in position. Hard work and dedication to the organization and its stakeholders means security for all of those who want it. Just as for anyone who faces significant changes, there is a grieving period, an acceptance period, and finally a move forward as a part of a new structure, devoted to providing the highest level of service to stakeholders and loyalty to the organization.

tecHnology

“Programming today is a race between software engineers striving to build bigger and better idiot-proof programs, and the Universe trying to produce bigger and better idiots. So far, the Universe is winning.”

– Rich Cook

Computer System Integration Merging two organizations in today’s world of technology involves the complex merging of legacy and newly emerging technology, particularly in the area of computers. It is imperative to understand and plan for the impact of merging computer systems on the systems themselves, as well on the people that use them. The change may involve



sending or receiving information via a new communication pathway. This could be scanning information to a new location, sending and/or retrieving information electronically versus on paper, or using electronic interfaces to directly move information. These changes require training, explanation, testing and support from both of the new business partners. Again, depending on the depth of the change and the temperament of the individuals involved, these changes can be either smooth and orderly or painful and disruptive to the organization. To effect a smooth transition, there must be adequate time devoted to documenting, testing and communicating how to use the new system. A proven option is the “train the trainer” approach where subject matter specialists identify lead learners or key members of the membership that are more adept at technological changes and train them, thereby multiplying those available to assist the less nimble in navigating a new system.

Parallel System Operations

There is much debate about the cost/benefit of running parallel systems during a migration from an old to a new system. For key business processes, where the livelihood of the organization is at stake, the risks to the organization in not running a parallel system far outweigh the associated cost with running parallel. One example of this might be where an organization is migrating to an fully electronic information system. Running a parallel system for the first 30 days by continuing to operate in a paper mode, while also running in the electronic mode allows a comparison between the two records, validation of the capture of all required information and feedback provision to the players regarding any discrepancies identified. The investment in time is offset by quick detection and capture of any missing services. Additionally, identifying and capturing the requirements of the merging entity can be inserted during the migration, allowing for minimization of downstream confusion

and of risks associated with the costs of both hardware and software changes being required in the future.

Human resourcIng

“The closest to perfection a person ever comes is when he fills out an employment application.”

– Stanley J.

Staffing levels are a matter of negotiation in a merger or acquisition. Economies of scale should be certainly considered as a potentially efficient approach to this determination. However, one of the next most angst-producing areas requiring attention is how to integrate differing benefit structures.

Benefit Plans Integration Integrating the benefit plans of two or more organizations following an acquisition or merger can be very complex. Unfortunately, the business decision-makers that plan and execute a merger or acquisition are not always those primarily concerned with company benefits. Consequently, the impact of these activities on benefits is usually left to be dealt with as an afterthought in the process or even ignored until after the merger or acquisition has been accomplished. Regardless of when it occurs, the first steps to integrating benefits plans are understanding both organizations’ ERISA plans and obligations, identifying any hidden or contingent liabilities and the implications of various course of action (plan merger, plan termination, or leaving the plan with the seller). Keep in mind that there are a myriad of different state, federal and tax laws and notices that must be considered when merging benefit plans. In efforts to merge or integrate multiple benefits plans, not only will you be challenged by the technical aspects



of this process; but also by the impact on employee morale and how those programs were tied to organizational culture. It is important to recognize that while merging and changing benefit plans may be necessary for the organization, it will have a significant impact on employees both financially and emotionally. In many instances benefit changes are or may be perceived by employees as a cut in compensation or losses. This is an area where organization managers and leaders may want to hide behind that previously mentioned adage that “it’s nothing personal, it’s just business.” However, for employees, pay and benefits are very personal, and their reactions are also very personal. Most employers recognize the need to communicate with newly acquired employees. The counsel to “tell them what you’re going to tell them, tell them, and then tell them what you told them” is appropriate. However, it should be modified so that your communications strategy is “tell them what is going to happen, and why, tell them what

is happening, and why, and tell them what has happened, and what they can now expect.” It’s the “why” part of the communications that is often missing. When employees are acquired, their lives are infiltrated with uncertainty. They may not remain employed. They may change reporting structures. There may be different processes and procedures that govern their work. There may be new expectations and other changes that will cause anxiety levels to rise. Adding uncertainty about the future of their benefits or improperly setting expectations may increase the employee relations issues, behavior issues and even productivity. Answering the “why” question can serve to minimize or even eliminate some of that uncertainty. Creating a “win-win” for both the organization and the employees when integrating benefit plans require organizations to: begin planning early, allow sufficient time; be knowledgeable and comply with regulations; involve the right people early in the process; understand the details involved; and

most importantly, be pro-active in communication with employees. This will reduce the amount of work imposed and reduce surprises, and building a better benefits program for the entire organization.

conclusIon

“When you jump for joy, beware that no one moves the ground from beneath your feet.”

– Stanislaw Lec

Mergers and acquisitions invariably create uncertainty . . . or do they? More appropriately stated, one might say that those that undertake to lead mergers and acquisitions create uncertainty. A more studied and proactive approach to handling the issues discussed herein might result in decreasing some of that uncertainty. Learning from past history can provide valuable insights into the causative factors and enable leadership to avoid some of the pitfalls. George Santayana once noted, “We must welcome the future, remembering that soon it will be the past; and we must respect the past remembering that it was once all that was humanly possible.” Doing all that is humanly possible may be a good goal when entering into mergers and acquisitions.


K.D. Lowe, MHSA, serves as Vice Presi-dent of Operations for ABC. Mr. Lowe grate-fully acknowledges the contributions of his co-authors at ABC Western Region: Kathy Payne, Kath-leen Hodgins, Theresa Osburne and Eileen Kuffner. He can be reached at [email protected].


News broke recently of the United States Congress decision to freeze Medicare payments for 2011 and not move to enforce a previously proposed approximately twenty-six percent (26%) cut in the national anesthesia conversion factor. Although this makes for a little brighter turn of the New Year, practices across the country are still faced with daily challenges of maintaining a healthy bottom line with more and more Americans still uninsured and/or under-insured. The costs of providing quality care still exist, yet the payments continue to decrease. Expenses in medical practices seem sometimes to be best represented by a freshly filled helium balloon at a child’s birthday party, “Up, Up, and Away….until they are out of sight”….unless the party host finds creative ways to stabilize them. Specifically, many anesthesia practices across the country are struggling with rising costs of personnel management, scheduling to meet the demands of the surgical and facility requirements without breaking the practice’s bank with overtime expenses and lack of appropriate utilization. Some practices have found that it is not only cost beneficial but it many cases absolutely necessary to move away from the traditional 7:00 a.m. to 3:00 p.m. shifts for their anesthetists. Practices are becoming more and more creative in scheduling management to partner with their surgeons and facility administration yet keeping their finances stabilized. Some ideas and examples that may be helpful for your practice are outlined below. Offer daily shift flexibility to the anesthetists in order to achieve coverage for late afternoon add-on cases without paying overtime rates. For example, a number of the practices’ anesthetists are working a combination of twelve (12) hour shifts and eight hour shifts on rotation.

This actually is attractive to the anesthetists as they achieve an extra day off each week. This modification in schedule provides coverage for the late day cases without creating any expensive overtime for the practice and also eliminates the anesthetist expectation of leaving every day at 3:00 p.m. In conjunction with an analysis of case start times in your operating room, there may be an opportunity to stagger daily start times of the anesthetists depending upon the surgeon and case load that day, so even reaching eight hours of work on a particular day may be the result of a 7:30 a.m. to 4:00 p.m. schedule rather than 7:00 am start time. Also, practices should schedule a one-half hour unpaid lunch break into the daily shift, so that the schedule is actually 7:00 a.m. to 3:30 p.m. rather than 3:00 p.m. with the lunch break included. Another idea is to analyze your anesthetist compensation package in total. It is beneficial to the practice and the facility to compensate anesthetists with a base pay and incentive bonus for anesthetists’ contributions and alignments to practice, department and facility objectives and goals. For example, OR efficiency, minimal case delays and day of surgery cancellations and patient and surgeon satisfaction are all metrics to consider when building a comprehensive evaluation and incentive-based compensation structure

for your anesthetists. By incentivizing the anesthetists to work on efficiency and productivity goals, they have some control over managing their schedule as well as additional compensation opportunity. Remember that the federal labor laws define overtime as hours worked greater than forty (40) in a given week. Some practices have mistakenly been paying an overtime rate for hours worked greater than eight in a day. Frequently there is at least one day each week that is lighter in the operating room schedule and personnel can take some of their time back from other days that week in which they may have worked later. You may want to be careful with shift differential compensation as well. It can be beneficial if the practice offers increased compensation in an effort to entice personnel to volunteer for later shifts on a consistent basis or as a regular schedule; however, you may find anesthetists working the day shift becoming slightly less motivated to gain efficiencies if there are greater dollars to be earned by working later in the day. Finally, in all cases it is necessary to evaluate your entire staffing plan and perform a comparative analysis of the cost associated with the hiring of additional part-time or full-time anesthetists, per diem labor as well as overtime to your current staff. Not every practice is the same and no one method will work for all. As we learned in seventh grade algebra, the optimal point is where the x crosses the y axis…this point will be different for every practice. The ultimate goal is an appropriate balance between practice vitality, recruitment and retention of quality providers, surgeon and facility satisfaction and above all the highest quality of patient care.

anestHetIst scHedulIngStephanie J . Zvolenski, MBA

Financial Manager, ABC

Pro f e s s i o n a l ev e n T s

ANESTHESIABUSINESS CONSULTANTS

255 W. Michigan ave.P.O. BOx 1123JacksOn, Mi 49204

PhOne: (800) 242-1131Fax: (517) 787-0529WeB site: www.anesthesiallc.com

DaTe evenT loCaTion ConTaCT info

Jan. 28-29, 2011 American Society of AnesthesiologistsPractice Management Conference

Houston, TX www.asahq.org

Feb. 18-20, 2011Arizona Society of AnesthesiologistsAnnual Meeting

Scottsdale Resort and Conference Center, Scottsdale, AZ

www.az-anes.org

Feb. 26, 2011Anesthesia and Pain Management Insights for 2011 State of the Specialty Symposium

Hyatt Rosemont, Rosemont, IL [email protected]

Feb. 26, 2011Michigan Society of Anesthesiologists Annual Meeting

Troy Marriott, Troy, MI www.mianesthesiologist.org

Mar. 20-23, 2011Medical Group Management Association Anesthesia Administration Assembly

Baltimore Marriott Waterfront,Baltimore, MD

www.mgma.com/aaa2011

Mar. 24-27, 2011American Academy of Pain Medicine Annual Meeting

Gaylord National Hotel & Convention CenterNational Harbor, MD

http://www.painmed.org/annualmeeting/main.aspx

Apr. 13-17, 2011Society for Obstetric Anesthesiology and Perinatology Annual Meeting

Loews Lake Las Vegas ResortHenderson, NV

http://soap.org/43-AM.php

Apr. 15-17, 2011Washington Association of Nurse Anesthetists Spring Conference

Doubletree Hotel,Seatac, WA

www.wana-crna.org

Apr. 15-17, 2011 Anesthesia Billing & Management SeminarCaesars Palace,Las Vegas, NV

http://www.certain.com/system/profile/web/index.cfm?PKWebId=0x21876782f0

Apr. 30-May 4, 2011Society of Cardiovascular AnesthesiologistsAnnual Meeting & Workshops

Westin SavannahSavannah, GA

http://www.scahq.org/sca3/events/2011/annual/

May 2-4, 2011 ASA Legislative ConferenceJ.W. Marriott,Washington DC

www.asahq.org

May 5-8, 2011Society for Ambulatory Anesthesia Annual Meeting

Grand Hyatt San Antonio HotelSan Antonio, TX

http://www.sambahq.org/

May 12-14, 2011Association of University AnesthesiologistsAnnual Meeting

Loews Philadelphia HotelPhiladelphia, PA

http://www.auahq.org/annualmtg.html

May 13-15, 2011 California Society of AnesthesiologistsThe Fairmont San JoseSan Jose, CA

www.asahq.com

Anesthesia Business Consultants: Communique winter11

Health & Medicine

Transcript of Anesthesia Business Consultants: Communique winter11