Protecting Income in an Era of Payment Reform (Bundle Payment Negotiation Strategies and Pitfalls)

In our previous article, we discussed how payment reform is leading to bundled payments, a single, predetermined payment that encompasses all aspects of an episode of care, which attempts to strike a balance between fee-for-service model and capitation.  We have been studying these issues closely and believe its important for all groups to understand future payment methodologies now.

Its imperative to understand a critical and unique dilemma: You will need to negotiate for and against your physician colleagues, administrators, and insurance companies in order to come out ahead! This is a special skill set which we will begin to describe in the paragraphs below. Most providers and administrators will benefit from some skilled help to create, compile and utilize the data needed to negotiate and monitor the bundle. Contact us at AnesthesiaStat.com to get started.

 

Points of Negotiation

In an era of bundled payments, it’s imperative that physicians become strong advocates in order to receive the compensation they deserve. Here are several factors to consider when negotiating a deal:

Risk Adjustment: All patients are not equal. Those with an increased risk for readmission or complications because of factors like age or comorbidities are more likely to require more of your services. Negotiate tiered rates that take into account patient variables.

Know Your Data: You went to school to be a doctor, not an actuary. Nevertheless, you need to have a solid understanding of the literature relating to the risks and outcomes of various conditions and treatments. The key to lessening your financial risk is being able to accurately predict your level of involvement.

Clearly Define the Episode: An episode of care that goes from surgery to seven days post-op should be paid at a different rate than one that extends to 90 days post-op. It’s imperative to agree on the definition of “episode of care.”

img_health_techBenchmarking in Gainsharing: The theory behind benchmarking is that you shouldn’t be financially penalized for another doctor’s less-than-stellar performance. For example, if surgeon X has higher (and more costly) complication rates that another, your gainshare of the savings pool should be greater. While collegiality might take a hit, benchmarking gainshare to performance is not only equitable, but it can lead to increased cost savings. If it’s clear to everyone that surgeon Y uses an approach that curbs costs, that approach can be implemented by others, thus increasing the savings pool and others’ gainshare. When negotiating your gainshare, consider a floor for hitting a minimum target (for example, being in the 85 percentile of a given performance metric) and bonuses for surpassing that target.

Transparency: Insist on transparency in how bundled payments are allocated (including the identities of each party), how payment will be apportioned, and how benchmarking data is collected and used.

Timing: There are a number of timing issues involved with bundled payments. The first – and most important – is the duration of the bundle. If it is a straight bundle, you can negotiate when you will receive your payment. If there is a gainsharing element, you can discuss the lag time for distribution of the savings pool.

 

Laying the Groundwork

Before you walk into negotiations, it’s important to understand your position relative to the positions of the other parties. “This is one area where groups can really use some help”, says Dr. Pierre of AnesthesiaStat Consulting. “I’ve seen deals become very unprofitable because a group did not do the proper groundwork ahead of time…. And this is not a physicians area of expertise” .

Most bundles are constructed on procedures that are easily protocolized and have less cost variation than “condition based” ones.  Here are a few examples:

  1. Cardiac Surgery/Cardiovascular Procedures
  2. Major Joint Replacements
  3. Hip and Knee Arthroscopy
  4. Carpal Tunnel Surgery
  5. Colorectal Surgery

For cases like these, it’s best to start by calculating your average revenues and cost (typically labor) for each procedure.  Depending on who you are negotiating the bundle (insurer vs. hospital), you may need to analyze your average reimbursement by procedure.

You will want to start with at least a year worth of data.  We would recommend the following list:

  1. Demographics
  2. Payer(s) information
  3. List of services provided per episode of care
  4. Billable units
  5. Average Anesthesia case time
  6. Anesthesia Case time by surgeon (a slow surgeon can make a case lose money)
  7. Average cost of care (median anesthesia compensation (include benefits) + overhead/total OR minutes= cost per minute)

There are other methods of estimating revenues and costs which we have employed when they provide transparency or added advantage.  At a minimum, you need to know your costs and get a good idea of volume to make sure you are covering your expenses.  As you mix fee for service with bundles, make sure your volumes are keeping up with both payment models to keep your numbers intact.  We have found that most groups need a lot of help in the beginning to get started, particularly with the volume conundrum.  In one example, under pressure from the hospital, a group bundled total knee replacements. In this case, they only had to account for the cost of labor.  The revenue per case value seemed to exceed the cost by a 15% margin.  Any profit, however, was more than offset by the decreased volume and the unreimbursed cost of 4 cancellations, three revision surgeries and a wound dehiscence.  The group ended up with a loss on the TKR’s for a six month period.  Faced with a full year of losses, they turned to help to renegotiate with their hospital.

 

Here are some issues to consider in assessing your leverage:

Know your goals and strengths: Have a clear vision of your short- and long-term objectives, as well as the unique value proposition you can deliver to your negotiating partner. Understanding your priorities will help you determine which points require steadfastness and which elements are more flexible. An inventory of your strengths serves as both a point of negotiation and a reality check. Always remember that 90 percent of something is better than 100 percent of nothing.

Value and competition: If you’re in a relatively large physician group in a relatively small city, you’ll have more leverage than a small group in a large city. On the other hand, if you have many Medicare patients and are part of an accountable care organization, you likely bring a lot of value to the organization. As a result, your position will be stronger. Research your competition to see the alternate paths available to your negotiating partner. This will prevent you from taking an unwavering stand on a point that isn’t an issue for your competition. In addition, keep in mind that your relative value may change depending upon your negotiating partner. For example, your value to a hospital might be different than your value to an insurer.

Allies and allegiances: Consider the outcome you want and determine who will help you best achieve your goal. Your allies might be other physicians, the hospital, the insurer, or your patients. Forming allegiances to get results is a sound strategy, but one that may have long-term implications. Remember that, over time, allies and allegiances can shift, so review each negotiation with a fresh mindset.

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Negotiation Strategies

Knowing how to approach a negotiation is different from proficiency in the actual art of negotiation. Here are four negotiation methods that can help you achieve your goals.

Foot-in-the-door technique: Social psychologists call this compliance technique “successive approximations.” The theory is that it’s easier to get someone to agree to a larger request by first gaining their assent to a smaller request. Once you get the first “yes,” it’s easier to get subsequent agreements. In your negotiation, begin with the least contentious points and work your way up.

Door-in-the-face technique: Those who solicit charitable contributions know that once the request for a large donation is refused, it’s easier to obtain a small donation. It’s a concept called social reciprocity. If your negotiations are stuck in one thread, ask for more than you want in a different arena. Then back down and ask for what you actually want. There’s a good chance you’ll succeed.

Changing the subject: When negotiations flatline, take a break and then come back to a different topic. Once that topic is successfully settled, it will be easier to return to and get cooperation for more contentious point.

Side door tactic: If talks have stalled, it might be time for someone not on the negotiating team to step in. If salient points and potential resolutions are suggested by someone outside of the primary group, the opposing party may be more likely to listen.

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Beyond Negotiations

The ability to negotiate your segment of the bundled payment is critical to obtaining just compensation, but so is the ability to create a paradigm shift. For example, orthopedic surgeons who have the ability to discharge joint replacement patients within 24 hours are beginning to move from hospital settings to ambulatory surgery centers. While not every patient is a candidate, those who are slash the episodic care cost by half while decreasing the potential for hospital-acquired infections. Hospitals are scrambling to address this outpatient migration trend, and surgeons and anesthesiologists are dealing with divided loyalties. Is it in doctors’ best interest to collaborate with a hospital to protect its patient volume or to develop innovative protocols that deliver value and, in the process, increase physician compensation?

When CMS proposed a rule to pay for outpatient knee replacements, American Hospital Association lobbyists effectively killed it. While the Ambulatory Surgery Center Association has recently tried to convince CMS to revive the rule, there’s no indication that change is in the offing. Yet a few private payers are agreeing to bundled payment outpatient joint replacements. In the meantime, some practice groups are dividing their patients between hospitals and ambulatory surgery centers, and some hospitals are opening their own outpatient centers and offering ancillary services like patient education programs to accommodate the trend. Yet the central question – partnership vs. competition – has not yet been resolved.

 

Conclusion

Bundled payments are the wave of the future, but you need to stay on your toes to ensure that you receive the compensation you deserve. In addition to having a thorough understanding of the potential points you can raise and honing your negotiation skills, it’s imperative that you understand every element of an agreement before signing on the dotted line. In order to maximize compensation, be on the lookout for game-changing opportunities. If you can find ways to slash costs, improve patient outcomes, or form strong alliances, you’ll be in the enviable position of garnering a larger slice of the proverbial payment pie.

It will take hard work and help from informed advisors like the physicians at AnesthesiaStat.com, but you can make it work! Contact us today at anesthesiastat.com to sign up for our newsletter, read our informative articles, or get the help you need.

 

Anesthesia Stat

Dr. Amar Setty     Amar Setty, MD

 

Dr. Harold Pierre     Harold Pierre, MD

Sally Smith

 

 

 

Tony Mira, “http://www.anesthesiallc.com/publications/anesthesia-industry-ealerts/738-bundled-payment-episode-of-care-resources-for-anesthesiologists

 

Don’t Be Afraid of Bundled Payments!

As fee for service payment arrangements fade with healthcare reform and financial risk shifts from payers to providers, anesthesiologists must become adept at a new style of negotiation. The bundled payment framework – a single, predetermined payment that encompasses all aspects of an episode of care – attempts to strike a balance between the unsustainable fee-for-service model and the one-size-fits-none capitation approach.

Healthcare executives, according to a survey by KPMG reported in Becker’s Hospital CFO, are pessimistic about value based contracts. Forty-five percent of surveyed executives expect a decrease in profits. Healthcare providers expect a modest (25%), significant (21%) or steep (6%) decline in profits. Nevertheless, with proper help and guidance, there does not need to be any fear.

Its imperative to understand a critical and unique dilemma: You will need to negotiate for and against your physician colleagues, administrators, and insurance companies in order to come out ahead! This is a special skill that is a dramatic departure from business-as-usual.

Background

banner_contactInitial forays into bundled payments date back to the mid-1980s, when the Texas Heart Institute charged flat fees for cardiovascular surgeries. Medicare initiated a trial of bundled payments in the early 1990s, when it created a demonstration project that paid a flat rate for coronary bypass surgery and related readmissions. In the mid-2000s, a Pennsylvania health

system began to charge insurers a flat rate that included bypass surgery and any necessary follow-up care for 90 days post-surgery. Soon after, the Centers for Medicare and Medicaid Services (CMS) conducted another bundled payment demonstration project for orthopedic and cardiovascular surgeries.

img_health_techIn 2010, the Affordable Care Act created the Center for Medicare and Medicaid Innovation (under CMS), which in turn launched the Bundled Payments for Care Improvement (BPCI) initiative. This pilot program encompasses four models of bundled payments. The first model is for episodic care at an acute care hospital for an inpatient stay. Under this model, Medicare continues to pay physicians separate from instutions.  The second and third models are retrospective. Medicare makes fee-for-service payments but then compares the total price for episodic care against a bundled target price and either pays or recoups the difference. This second model applies to an inpatient hospital stay, while the third model applies to post acute services, such as skilled nursing, home health, and rehabilitation. The fourth model is a truly bundled approach, covering soup to nuts (including physician payments) for an inpatient stay. In this model, the physician  submits a “no pay” claim to Medicare but is paid from the bundle.

Under the BPCI initiative, participants are divided into two groups: Awardees and Episode Initiators. Awardees are those that assume financial liability for the spending associated with an episode of care. Episode Initiators – such as hospitals and physician groups – trigger episodes of care but don’t bear the burden of financial risk (unless they also happen to be Awardees). Forty-eight different episodes of care – ranging from spinal fusion to coronary bypass to joint replacement – are being tested. Some Awardees are participating in a single type of episode, while others are participating in a range of episodes.

In November 2015, CMS issued a rule mandating bundled payments to 800 hospitals for knee and hip replacements. Called the Comprehensive Care for Joint Replacement (CJR) Payment Model, it will cover about a quarter of the surgeries for which Medicare currently pays. This five-year CMS test will use the second BPCI payment model, in which actual costs are compared to a bundled episodic care payment, and then CMS pays or recoups the difference. Under this program, the episode of care is defined from admission to 90 days post-discharge.

The CJR is not a true bundled payment.  Basically, all providers continue to operate as they do now by performing services and collecting in a fee for service model.  At the end of the year, the hospital is charged a penalty or given a bonus based on the grand total of all the payments made.  Ultimately, the hospital bears the risk of the system.  They may try to pass this on to providers, but it is not done by the payer.  Thus, it is not a true bundled payment but more of a pay-for-performance system.  The truth is, this can actually discourage innovation.  Let’s say, for example, that better monitoring or a home based rehab/nursing program could provide a good outcome.  This service is not paid for by medicare.  Thus, there would be little incentive to implement it– even though it could save money.  In a true bundle, the providers would work together to create programs like this to avoid utilization of services.  Also, the retrospective nature take the providers “skin out of the game”.

CMS isn’t the only player making the transition toward bundled payments. State-run programs are taking a cue from the BPCI initiative (and receiving support from CMS). Self-insured employers are contracting with health or hospital systems for specific types of surgeries and procedures. And an increasing number of big name insurers are pursuing bundled payment contracts for a range of conditions and treatments.

Bundled payments have distinct advantages. From the payer’s perspective, it reins in superfluous tests and procedures; from the provider’s perspective, it doesn’t extract a capitation penalty for patients who have chronic conditions. Yet, for physicians – especially anesthesiologists and surgeons – bundled payments present significant compensation challenges. At one end of the spectrum is the potential for working “off the clock” when a patient has complications requiring subsequent surgeries and you’re receiving a single payment for episodic care. At the other end is the issue of being compensated fairly – day in and day out – for the services you provide. Put another way, you must advocate for yourself in order to get the slice of the bundled payment pie that you rightfully deserve.

 

Gainsharing

images-2As of April 2016, BPCI had 321 Awardees and 1201 Episode Initiators. Notably, there are only ten participants in the fourth model, where the physician is paid from the bundle and submits a Medicare “no pay” claim. An annual report from February 2015 (the latest available) reported that engaged physicians championed BPCI’s Model 4, both as a program and in selecting episodes of care. It noted that financial opportunities topped the list of Awardee rationales for participating in this fourth model, including the ability to employ a technique called gainsharing. Gainsharing promotes coordinated and efficient care by passing along cost savings to providers. While each Awardee allocates gainsharing as it wishes, one reported calculating monthly internal cost savings (ICS), adjusting for readmission expenses, and then placing half of the ICS into a savings pool. Payments from the pool are distributed (to individual physicians or groups) monthly, but with a 45- to 60-day lag. Because this model is prospective, gainsharing only occurs when cost savings are realized.

Bundled payment arrangements with entities other than the federal government can include gainsharing, yet it’s important to keep in mind that federal laws prohibit certain types of gainsharing financial arrangements. One of the concerns about the CJR Payment Model rule was that it didn’t waive the Anti-Kickback Statute or Stark Law. In response, CMS and the Office of Inspector General issued a notice outlining the process for obtaining waivers. Keep in mind that, while there are federal carve-outs that allow gainsharing, always ensure an agreement’s legality prior to entering into it.

One must also consider applicable state laws that introduce their own complexity. In Maryland, for example, the state Self Referral Law is more restrictive than national prohibitions. Efforts to open up the law to bundle payments have led to competing bills from hospitals, corporations and coalitions of specialty groups each looking to carve out or oppose “profit centers”. Its not certain, at the moment, what compromise will look like.

In our next article, we will discuss details and strategies from expert negotiators to create the ideal bundle. It will take hard work and help from informed advisors like the physicians at AnesthesiaStat.com, but you can make it work! Contact us to sign up for our newsletter and ask for an advance copy of “Bundle Payment Negotiation Strategies and Pitfalls”.

 

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Anesthesia Stat

Dr. Amar Setty     Amar Setty, MD

 

Dr. Harold Pierre     Harold Pierre, MD

Sally Smith

 

Ayla Ellison, “Majority of healthcare executives expect finances to suffer in move to value-based contracts” Beckers Hospital CFO, June 21, 2016

The Center for Healthcare Quality and Payment Reform, “http://chqpr.org/blog/index.php/2015/07/bundling-badly-the-many-problems-with-medicares-comprehensive-care-for-joint-replacement-proposal/

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Investing in Healthcare Startups

A primer and suggestions on making it work

 

The recent ups and downs of the market have many physicians looking for investment alternatives. As our careers face the risk of new payment models and population health care, many physicians are looking to diversify their career. Medical Technology startup investing may be an answer.

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There are a few reasons why many doctors look to startup investing:

  1. Physicians have a broad knowledge of science and technology that gives them unique insight into new and emerging companies.
  1. Doctors can identify problems in need of solution or provide guidance and support to those in development. They can also help test, evaluate and improve new products.
  1. Physicians want to have an ownership stake and be part of the team. It does not necessarily need to be passive like late stage investments.
  1. Doctors generally have capital and need to extend their finances beyond their own practices.

 

At the same time, one of the biggest barriers for health care entrepreneurs is finding investors comfortable enough with the sector to invest.

As Rebecca Lynn, a managing director and co-founder at Canvas Ventures, said early-stage investments pay off more because the investors get more of an ownership stake and are more a part of the team. “Later-stage investing is more like a stock bet,” she said. “You’re along for the ride.”. If you want to have influence and be part of the company—you have to start early. There can be excitement in being part of something new. Physician partners, particularly in Health Tech, are often part of the team in helping to design, test, market or develop products.

Since there is little research about non-publically traded companies (and less about seed funded startups), it takes a big leap of faith to put your money into one. Management, which is typically founder led, is understandably excited beyond. Investment advisors, particularly those with little startup experience, will likely balk at high levels of debt compared to equity or a lack of foreseeable profit. Cash burn and the prospect of dilution in future equity raises can seem daunting.   How can you identify the next Apple, Medtronic or Facebook? Its not easy…. But there is a process that can make that better.

Lets start by understanding the basics:

Investment rounds are an essential part of the startups.. You will encounter them progressively as you negotiate a deal either with a startup founder, or as an investor looking to attract further capital to an existing organization. Either way, an understanding of each round and why it exists is critical.

  1. Seed Investment

This helps a startup founder establish the direction and goals of their business. The seed stage of any organization more speculative than other rounds of investment. It is there to establish the startup as a company or go as far as to bring a product to market.

A seed investment should aim to achieve one of the following:

  1. Product Identification: A startup founder may have an idea about the type of product or service he/she hopes to develop, but seed investment is usually a big part of cementing design elements and settling on a product for launch.
  2. Marketplace Orientation: At a seed stage,` a startup may be looking to carry out research into available marketplaces, understanding the competition and how best to sell a product or service within that niche.funding-for-startups-2
  3. Demographic Targeting: It may still be necessary to identify the specific demographic or target audience for a product or service. This might include market research and other exploratory measures to define this more clearly.
  4. Team Creation: There is the possibility that a seed investment could be used to establish a working team beyond the founder(s) of the startup. This could be needed in order to bring the right expertise needed to create or launch a product.

Seed investment is not always necessary, as many startup founders will have much of the infrastructure in place before seeking capital. In some instances, however, this type of investment can be critical to bring a startup idea out of its infancy.

  1. Series A Investment

This type of investment is often the first encountered when the seed stage does not require outside funding. At this juncture most startups have a strong defined idea of what the central goal is behind any product or service and may even have launched them commercially.

Series A investments should achieve one of the following:

  1. Distribution: Optimizing the way that products/services are distributed is a key part of series A investment. This can lower overall costs or increase sales; hopefully both.
  2. New Markets: Launching a successful product in a new region can be costly. This is why series A investment is often sought by startup founders.
  3. Stage 2: The primary function of a series A investment is usually to take a company to the next level. Capital raised during this round is often used to implement a new business plan. This could include launching a new product or reaching a new sales target.
  4. Shortfall: Series A investment can also be used to make up for a shortfall in capital. A startup may still be a promising investment opportunity, but unforeseen expenses can use up available funds, and so another round of investment might be required to offset this.

 

  1. Series B Investment

By the time Series B investment is being actively pursued a startup is usually well on its way to being a truly established business. Production is well managed, advertising in in full flow, and customers or users are actively purchasing an associated product or service as planned. While scalability is a factor in Series A investment, here it is the main focus. This includes:

  1. Team Expansion: As the company grows it is likely that more employees will be required in order to ensure smooth running of the business. This may involve an initial outlay beyond using sales to pay for salaries. It is likely that employees will need new equipment, office space etc., in order to perform effectively.
  2. Globalization: A startup might be selling in one or two regions, but this is often the stage where capital is needed to establish a company on the global stage. Trading in every region can require a significant outlay depending on the nature of the business, and this is exactly why Series B investment rounds exist.
  3. Acquisitions: If a startup has grown sustainably, it may be in a good position to bolster its operations through acquiring another business. This could be in the form of a competitor, or perhaps a related technology or patent which could be incorporated into the company. Rather than using its own reserves it can be beneficial to pursue new investment to fund such an acquisition or merger.

 

  1. Series C Investment and Beyond

There is no technical limit tostartupdiagram the number of investment rounds a startup can pursue. This depends heavily on any anti-dilution agreements previous investors have acquired, ensuring that their stake is never watered down. As each investment round progresses, more and more equity from the company is released.  Dilution hurts existing shareholders!

Understanding the various machinations of each investment round will help a potential investor decide on the most appropriate course of action. With the information contained in this article hopefully such rounds will no longer appear so confusing.

 

  1. What Now?

Understanding the basics is just the beginning. An internet search in an area of interest is another. Fundingpost.com and Healthfundr.com. A new phone app called shotpitch allows startups and investors to come together. Visit local technology incubators that house and develop start up companies. You will get exposure to founders, other investors and developers. There are also funds which excel in start up investing. These are more passive ways to get involved.

A new, and perhaps more exciting, way is to become part of a physician investment club that allows you to learn about new and emerging tech. After discussing with like minded physician investors, you will be in a better position to make a decision for yourself. AnesthesiaStat is creating such a discussion group. To be involved, email us at info@anesthesiastat.com or click here to view our website at www. Anesthesiastat.com

 

The foregoing article is for educational purposes only and should not be construed as legal advice.  The information described in the above article is just an example of fundraising rounds and may not apply in every deal.  There may be overlap between specific rounds.  The round terms themselves, “Seed,” “Series A, B, C,” etc., may also be interpreted differently by founders, investors, and institutions. Prospective investors should carefully review the documents of any offering which they are considering for purchase and should consult with their legal counsel and professional advisors.

 

(AMIE TSANG. Morning Agenda: Start-Up Investors Are Not Waiting for Growth Wsj 3/14/16)

The Company Model– What It Means for You!

Recently, a confidential Qui Tam federal motion by the Florida Society of Anesthesia (FSA) has been made public. In this suit, the FSA alleges unlawful “company model” schemes by several practice groups, mainly gastroenterologists, and filed a federal false claims act complaint.

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Anesthesiology has seen a rise of proceduralists utilizing the company model. In this model, anesthesia providers are hired, turn over billing rights, and then are compensated below market rates. Alternately, CRNAs can replace physician anesthesiologists. Some believe this loss of business and income has larger implications. In an era of health reform, this may alter the value of Anesthesia Care in fee splitting/value based models of care. The company model is currently illegal under some state laws, such as Maryland, but not necessarily federal law. Other arrangements exist, however, that are legal. This article reviews the basics and the implications.

Get Ready To Do A Lot More Endoscopies For A Lot Less!

The National Colorectal Cancer Roundtable set a goal to screen 80% of eligible patients by 2018.  To accomplish this goal, the Centers for Medicare & Medicaid Services (CMS) decided to waive copayments and deductibles for screening colonoscopies.  Section 4104 of the “Patient Protection and Affordable Care Act” waives the beneficiary coinsurance for covered preventative service that have a grade of “A” or “B” from the U.S. Preventative Services Task Force (USPSTF). Colorectal screening has an A grading.colonoscope

While this may be good to increase access to colorectal cancer screening, CMS followed this change with endoscopy related payment cuts in 2016.  Those cuts effectively decrease payment to gastroenterologists by 9%, facilities by 9.5% and offices by 2.3%.  So drastic were those cuts, that a recent survey of 327 gastroenterologists conducted by Dr. Matthew McNeill, MD found that the surveyed gastroenterologists may cut procedure volume by about half.  

If this survey result comes to fruition, a collision course is on its way that spells trouble for most gastroenterologists and anesthesia providers. More patients seeking screening colonoscopies but dwindling payments for those procedures.  If this reality wasn’t bad enough, private insurers have paired specialists against each other in an effort to further reduce payments.

Are Ambulatory Care Centers Really the Future of Anesthesia?

The past 10 years have seen an increase in surgical volumes as health reform has brought more people into the health system.  Dr. Thomas Miller, in a recent ASA Monitor post (link),  notes that Medicare beneficiaries increased 10% and the Anesthesia claims count increased 136%!  Underlying this trend is something less reported– there is a big shift in case volume away from Hospital inpatient settings into freestanding Ambulatory Care Centers and Hospital owned outpatient centers

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This trend is likely true among all payers as well.  AnesthesiaStat is performing an analysis of data in an HCUP database to look at these trends.  There appears to be a shift of of both acuity and volume across the board.

What does this mean for Anesthesia groups?  How should you position yourself for the future?

Mark Weiss, JD, in a stimulating and provocative article called,” Impending Death of Hospitals: Will Your Anesthesia Practice Survive?“, argues that hospital consolidation and employment of physicians will be a failure.  He believes the shift of volume in to more efficient ASC’s will lead to the failure of hospitals. He concludes with the following, “Freestanding facilities, even mobile ones, will be the future of the huge bulk of surgical care. If your practice isn’t already heavily focused on freestanding facility care, begin pivoting in that direction. ”

So, what does that mean?  A simple answer is to start acquiring ASC’s. However, surgeons are getting wise to that solution.  In fact, many are utilizing “company model” type solutions to employ Anesthesiologists at below market rates (or replace physicians with CRNA’s to profit) .  In Maryland, a coalition of surgeons is attempting to roll back the state self referral law to allow for the company model.  In many areas, surgeons are working to create accountable care or bundled payment models that allow them to control the money.  Of course, they cannot entirely be to blame.  Surgeons are facing decreasing reimbursement and facility fees.  Insurers are rejecting out of network models of care, reducing their options.  A future article will develop this concept futher and specifically, look at the pressures in GI Anesthesia.

Anesthesiologists must be ready to fight for their independence.  Part of this is data driven.  Don’t know how?  Click here to get in touch.  We are happy to help you develop the data driven message your practice needs to show its worth and the value you provide.

 

 

Ketamine Infusion Clinics- Is this Off Label Practice Right for You?

From time to time, we like to offer information about new services that you should consider. This article from AnesthesiaNews about Ketamine Infusions gives some useful background.  Contact us for more information or help:

“A growing number of anesthesiologists are opening private clinics that provide off-label infusions of ketamine to patients suffering from treatment-resistant unipolar and bipolar depression, post-traumatic stress disorder (PTSD), anxiety, suicidality and other disorders. Psychiatrists and other physicians have also recently opened clinics.

The cost per infusion ranges from $400 to $1700, with most clinics charging about $500. Patients pay out-of-pocket since most health insurance plans do not cover the off-label procedure.

Despite the cost, patients seek the treatments after their antidepressants and other therapies prove ineffective. Proponents claim that, when administered as an IV infusion in a subanesthetic dose (typically 0.5 mg/kg body weight) over 40 to 45 minutes, ketamine begins reversing symptoms of depression for two of three patients in less than 24 hours, with effects persisting for a week or more. Nearly three of four patients suffering from suicidality experience an almost immediate reversal in thinking.”

Contact us to help evaluate this practice for you.  Here is a link to the article.

Medical Practice Buyouts- Are We In A Bubble?

Physicians have been slow to catch on, but we are finally learning about the new marketplace. Wall Street and private equity financed companies; hospitals and large physician groups are competing for physician practices. Our past articles have explained why the market has changed. There is still a lot of confusion, however. The number one question I continue to get asked is, “Are we in a bubble?”. The number two question is, “What happens to me when it pops?”.   In this short article, I’ll give my opinion on the excitement in the market and what may happen if/when sentiment changes.

 

Despite growing financial pressures on practices, many colleagues are cashing in by selling.   Many of us are accustomed to the periodic irrational exuberance of the stock market and worry about something similar happening in medical practice valuations. The answer, as always, is a very personal assessment of risk and benefit.

 

Confused? Start with the concept of the bubble itself. Many economists have attempted to answer this question. There is never a straightforward answer. The basic idea is that when excitement leads to an increase in asset prices or valuations beyond traditional metrics, you may be in a bubble. Notice I used the word “may”. There is no accepted straightforward definition of a bubble. More important: on an individual basis, as a famous investor once said, “the market can be irrational much longer than we can stay solvent“.

 

Getting beyond the “bubble” really changes things around. The question becomes an individual one rather than a macroeconomic one.   Is the price someone is willing to pay for my practice high enough now that I am willing to accept future risk to my practice? What are the opportunity costs of not selling now?

 

What are the future practice risks? This is somewhat nebulous. Let’s look at one scenario. The large entity you sell to may be better at managing expenses and risk in an era of health reform. For some time, you may benefit from practice efficiency, technology and income stability/repair that the new entity provides (see previous articles for more details). Is there a point at which they maximize efficiency? What point will growth cease to impress the capital markets and multiples (price above earnings the market will pay) start to come down? What affect will that have on operations? When companies leave the rapid growth cycle, it creates pressure to decrease costs. Salaries and staff are reduced.

 

In our past articles, we argued that corporations are buying practices at earnings multiples of 3-9 and “reselling” them to the capital markets at multiples of 15-30. They use the money raised to purchase more practices. As corporate valuations go up, they can easily fund more practice acquisitions (of note, they also use the free cash flow of the practices to fund acquisitions as well). This means that practice valuations can be subject to the whims of Wall Street. Here is the 52-week chart of Envision Healthcare (EVHC), Team Health Holdings (TMH) and Mednax (MD). Notice the volatility. If their access to capital is decreased due to a declining valuation, that could mean decreased prices for practice acquisitions in the future.

envision

The recent buyout offer by Amsurg for TeamHealth underscores that this is a dynamic marketplace. Consolidation will reduce the number of potential acquirers.

 

We must also consider macroeconomic pressures. Eventually, rising interest rates will make acquisitions more costly and reduce prices. The lending market is still tight because of the financial crisis of 2008.

 

The uncertainty raised in the previous paragraphs explains the dilemma but also points to the solution for those worried about a bubble. Our best guess is that most providers/owners are better off now with the investment and efficiency of a large entity. If the underlying business of anesthesia deteriorates, the smaller groups will be hurt more than the bigger ones. Even if the business falls apart, you will likely have fared better in a large company than on your own during a downturn (“popped bubble”).

 

In the end, I cannot say with certainty that we are in a practice valuation bubble. Bubbles tend to be impossible to predict. Are we saying you should sell now? Not necessarily. Just that you should think about it systematically and not run away because of fear. Start with a practice and risk assessment. Then you can choose among several options, which may or may not involve a sale of your practice.