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Physician anesthesiologist at Stanford at Associated Anesthesiologists Medical Group

Richard Novak, MD is a Stanford physician board certified in anesthesiology and internal medicine.Dr. Novak is an Adjunct Clinical Professor in the Department of Anesthesiology, Perioperative and Pain Medicine at Stanford University, the Medical Director at Waverley Surgery Center in Palo Alto, California, and a member of the Associated Anesthesiologists Medical Group in Palo Alto, California.
emailrjnov@yahoo.com

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America’s hospitals are in fiscal chaos. Anesthesiologists work in hospitals, and when a hospital closes, anesthesiologists lose their jobs. Sixty-seven percent of U.S. Hospitals are losing money, particularly when it comes to the treatment of Medicaid/Medicare patients.¹

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According to a recent study published in the journal Health Affairs, 55% of hospitals lost money on each patient they served in 2013, and one-third of hospitals had a net profit of less than $1,000 per discharged patient. Only 12 percent of the hospitals studied received net profits of more than $1,000 per patient when payments from insurers, government, and the patients themselves were included.²

An anesthesia group’s success is closely tied to the fate of their hospital. If you think hospital employment or close alignment with your hospital is your security blanket, you may be wrong. How worried should you be if your hospital doesn’t survive?

Per Forbes³ and the Harvard Business Review,⁴ in fiscal year 2016 the New England hospital network Partners HealthCare lost $108 million, MD Anderson in Texas lost $266 million, and the Cleveland Clinic had a 71% decrease in operating income. Fiscal problems were due to decreased income and increased expenses, including:

Decreased reimbursements from payers, including both the government and private insurance. Most hospitals are losing money on Medicare patients because the hospital costs exceed Medicare’s fixed, per-admission DRG payments.
Decreased revenues due to implementation of an electronic health record (EHR) system. According to a Deloitte Survey of US Physicians,⁵ 70% of physicians reported that EHRs reduced their productivity, thereby raising costs. In addition, these EHR systems require high startup and maintenance costs, in the hundreds of millions.
The exodus of once-profitable services to outpatient venues, including the movement of surgery to physician-owned ambulatory surgery centers (ASCs). ASCs offer a significantly cheaper alternative to Medicare, private payers, and patients, and physician owners earn money for doing cases at ASCs they own. There are nearly 6,000 ASCs in the United States.
High costs for the construction of new hospital and clinic facilities. Hospital leaders are spending millions in capital to expand their medical campuses.
Escalating labor expenses for the largely unionized workforce. Nurses, janitors and other medical center employees threaten to strike at each negotiation period, and the healthcare system must face increased costs in both wages and benefits.
Older and sicker patients require expensive medical care. This expensive medical care includes ICU stays and expensive equipment for invasive procedures and monitoring.
Costly decisions to purchase multiple physician practices and to pursue physician integration, i.e. making physicians employees of the hospital system, have resulted in loses of upwards of $200,000 per physician per year, with no clear returns on the investment to the healthcare systems.⁴

Regarding this latter point, currently 20-30% of all practicing physicians are employed by hospitals, and a high number of physicians are controlled by hospitals through alignment relationships such as Accountable Care Organizations and foundation model medical groups. A current model is for healthcare systems to gain scale in regional markets by purchasing outside physician practices. Acquired physicians are then paid a fixed salary, and lack the incentives to produce income in their previous private practices. It becomes more attractive for many physicians to merely work an 8-hour day and go home. Productivity suffers, and the bottom line suffers for the healthcare system.⁴ The good old days of self-employed physicians working in private practice groups have largely given way to systems of MDs working for salaries paid by hospitals or multispecialty foundation groups.

Another current model is for hospitals to gain scale by merging with other hospitals. There were 105 hospital mergers in 2013 and 100 mergers in 2014, and 1412 hospitals have merged since 1998. Hospitals merge with the goals of attaining strength as a larger entity, eliminating competition, increasing patient revenues, and increasing profits. When large hospitals merge and when hospital systems buy increasing amounts of physician practices, the administrative costs go up.⁶ Stanford University Hospital, the hospital I work at, merged with the UCSF Hospitals in 1997 during a similar wave of hospital mergers. The UCSF/Stanford HealthCare union was a financial failure, with losses of $86 million in its second year. The two medical systems separated in 1999.

What about anesthesiologists in the current healthcare systems? There are 46,000 anesthesiologists in the U.S, and these anesthesiologists provide $20 billion worth of health care services each year. Half of these anesthesia providers are employed by the medical centers where they practice. Forty-two percent are local private groups, and 8 percent of anesthesiologists are operated by one of four national practice management companies.⁷

Anesthesia work within hospitals includes increasing numbers of older, Medicare, and Medicaid patients. Medicare pays very low anesthesia rates—less than one third of commercially insured patients—and Medicaid rates are even lower. Ambulatory Surgery Centers (ASCs) have captured many of the well-insured, healthy patients for short, predictable surgical procedures. Anesthesiologists at an ASC earn stable incomes working 7 a.m. to 3 p.m. shifts at an ASC, and anesthesia groups covet such work. Because of the lower payer mix at hospitals, many hospitals have been forced to pay yearly stipends to anesthesia groups to retain essential anesthesia coverage for operating rooms, obstetrics, and trauma services.

What happens if hospital systems, with their current financial failures as described in Forbes and the Harvard Business Review, should fail and dissolve? Expect the facilities that survive to handle care only for the sickest patients and the most complicated procedures. There will continue to be a need for anesthesia services at those facilities, and there will always be sick patients who require surgery and anesthesia care. Keep your eyes and ears open. It’s common for anesthesiologists to isolate themselves from hospital politics, but I recommend you involve yourself in your healthcare system’s workings and become knowledgeable regarding your hospital’s fiscal solvency. If your hospital system fails, you may find yourself scrambling for a job in a different hospital, a different town, or a different part of the United States. The crystal ball is cloudy regarding specifics, but some anesthesia providers will find themselves playing musical chairs because of the need to find new jobs. Healthcare attorney and former University of Southern California anesthesia faculty member Mark Weiss predicts that freestanding facilities, even mobile ones, will be the future of a large percentage of surgical care. If your practice isn’t already heavily focused on freestanding facility care, independent from hospital care, he urges you consider every opportunity to expand in that direction.⁶

Many hospital systems are drowning in red ink, and you can expect to see dynamic changes as a result.

Stay tuned, and stay informed.

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