Why not outbid an AMC?

[deleted131481]

Hi all,

I am a CA-1 considering job prospects, and the region I want to work in has majority market share by AMCs with some private groups. I will work at an AMC if it comes down to it, but it's certainly not my ideal choice.

I have a fairly limited understanding of private practice anesthesia, but my question is: can a private physician group outbid an AMC? And if so, how come I've never heard of it?

To my understanding, most AMCs have formed by buying out current private practices, usually physician-owned. Less commonly heard (correct me if I'm wrong), is an AMC outbidding a current incumbent group. These AMCs are corporation or private equity funds or whatever, so I imagine they are making a nice margin on all their employees. I don't know what number that is, but let's say 30%. Doesn't that give a significant margin that another group could outbid them?

Let's say Hospital A has anesthesia services through an AMC. The AMC makes 30% margin off the physician services in the practice. What's to stop an outside physician group from underbidding the incumbent AMC by 15%? Seems like that group would benefit from owning their own group, and have higher average salary than as an AMC employee.

I could see significant barriers including:
- Timing. Hospital contracts are not renewed every year, maybe more like every 5 years?
- Having available group/physicians. To take on a contract, obviously you need available physicians, and finding 10-20 anesthesiologists to bring in at once is no easy task. One choice is new grads, but I imagine a hospital would not be thrilled hiring a bunch of anesthesiologists straight out of residency. My idea (?fantasy) would be to partner with a local physician only group that would be willing to take on a bunch of new grads in expanding to a another hospital. This would give the hospital the comfort of an established group running the practice.
- Legal/business expertise. I'm sure the AMC has the lawyers, business connections, etc. which no independent group could hope to match.

I am curious to see what others think, and how far off my perceptions might be. It seems to me an above situation would have significant hurdles, but if they could be overcome everyone would benefit except the AMC.

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[B-Bone]

Hi all,

I am a CA-1 considering job prospects, and the region I want to work in has majority market share by AMCs with some private groups. I will work at an AMC if it comes down to it, but it's certainly not my ideal choice.

I have a fairly limited understanding of private practice anesthesia, but my question is: can a private physician group outbid an AMC? And if so, how come I've never heard of it?

To my understanding, most AMCs have formed by buying out current private practices, usually physician-owned. Less commonly heard (correct me if I'm wrong), is an AMC outbidding a current incumbent group. These AMCs are corporation or private equity funds or whatever, so I imagine they are making a nice margin on all their employees. I don't know what number that is, but let's say 30%. Doesn't that give a significant margin that another group could outbid them?

Let's say Hospital A has anesthesia services through an AMC. The AMC makes 30% margin off the physician services in the practice. What's to stop an outside physician group from underbidding the incumbent AMC by 15%? Seems like that group would benefit from owning their own group, and have higher average salary than as an AMC employee.

I could see significant barriers including:
- Timing. Hospital contracts are not renewed every year, maybe more like every 5 years?
- Having available group/physicians. To take on a contract, obviously you need available physicians, and finding 10-20 anesthesiologists to bring in at once is no easy task. One choice is new grads, but I imagine a hospital would not be thrilled hiring a bunch of anesthesiologists straight out of residency. My idea (?fantasy) would be to partner with a local physician only group that would be willing to take on a bunch of new grads in expanding to a another hospital. This would give the hospital the comfort of an established group running the practice.
- Legal/business expertise. I'm sure the AMC has the lawyers, business connections, etc. which no independent group could hope to match.

I am curious to see what others think, and how far off my perceptions might be. It seems to me an above situation would have significant hurdles, but if they could be overcome everyone would benefit except the AMC.

This is not how it works. The only way any entity can "underbid" another for a hospital contract for anesthesia services is by not taking anything from the hospitals. Many groups don't get paid anything from the hospital, and merely have privileges there to provide services and do their own billing. All revenue for the PP group (or AMC or whatever) comes from billing patients for anesthesia. Other groups get some sort of subsidy from the hospital in addition to the revenue they generate by billing for anesthesia services. These subsidies are usually for providing call coverage or some other time commitment that would otherwise be a money-loser for the group (OB, transplant, peds call, etc for a service where the billing revenue isn't enough to justify the time commitment). If a PP group (or an AMC) doesn't get any money from the hospital, there's no way to "underbid" them, unless you offer more services for the same zero dollar subsidy (a tough sell to any group). A PP group with no subsidy probably makes less billing revenue than a large AMC covering the same site because of better volume-based insurer payments. Thus, the AMC can cover the site without a subsidy (and provide OB/call/etc coverage for free), because theu're making the money up with better rates from insurers. Small PP groups could theoretically do this, but they'd take a big financial hit and have very low salaries, making it tough to recruit good talent.

Basically, as long as there's some baseline level of competency, the hospital doesn't care who provides their anesthesia, as long as it's "free" to them. Great anesthesia is no different from good or marginal anesthesia from their point of view. The ideal anesthesia providers for a hospital are whoever will get it done with the fewest headaches for the fewest dollars out of their pocket. This is frequently an AMC.

The rare exception is the AMC whose providers are so bad that they cause the ORs to grind to a halt. This happened a few years ago in VA, when the AMC didn't have competent CV anesthesiologists and the hospital had to stop providing cardiac surgery. I believe the AMC got the boot and a private group (or maybe another AMC) came in and scooped up the contract.

 

[Arch Guillotti]

The rare exception is the AMC whose providers are so bad that they cause the ORs to grind to a halt. This happened a few years ago in VA, when the AMC didn't have competent CV anesthesiologists and the hospital had to stop providing cardiac surgery. I believe the AMC got the boot and a private group (or maybe another AMC) came in and scooped up the contract.

I think that was in Norfolk, there were some interesting videos on youtube at the time.

 

[Arch Guillotti]

AMC's do buy out practices but they also just scoop a contract sometimes. There is nothing that says an AMC has to offer a buyout at a site that is taken over. If the contract renews every so often, anyone potentially could grab the next one, particularly if the administration is not satisfied with the current group.

Hi all,

I am a CA-1 considering job prospects, and the region I want to work in has majority market share by AMCs with some private groups. I will work at an AMC if it comes down to it, but it's certainly not my ideal choice.

I have a fairly limited understanding of private practice anesthesia, but my question is: can a private physician group outbid an AMC? And if so, how come I've never heard of it?

To my understanding, most AMCs have formed by buying out current private practices, usually physician-owned. Less commonly heard (correct me if I'm wrong), is an AMC outbidding a current incumbent group. These AMCs are corporation or private equity funds or whatever, so I imagine they are making a nice margin on all their employees. I don't know what number that is, but let's say 30%. Doesn't that give a significant margin that another group could outbid them?

Let's say Hospital A has anesthesia services through an AMC. The AMC makes 30% margin off the physician services in the practice. What's to stop an outside physician group from underbidding the incumbent AMC by 15%? Seems like that group would benefit from owning their own group, and have higher average salary than as an AMC employee.

I could see significant barriers including:
- Timing. Hospital contracts are not renewed every year, maybe more like every 5 years?
- Having available group/physicians. To take on a contract, obviously you need available physicians, and finding 10-20 anesthesiologists to bring in at once is no easy task. One choice is new grads, but I imagine a hospital would not be thrilled hiring a bunch of anesthesiologists straight out of residency. My idea (?fantasy) would be to partner with a local physician only group that would be willing to take on a bunch of new grads in expanding to a another hospital. This would give the hospital the comfort of an established group running the practice.
- Legal/business expertise. I'm sure the AMC has the lawyers, business connections, etc. which no independent group could hope to match.

I am curious to see what others think, and how far off my perceptions might be. It seems to me an above situation would have significant hurdles, but if they could be overcome everyone would benefit except the AMC.

 

[Arch Guillotti]

I have a fairly limited understanding of private practice anesthesia, but my question is: can a private physician group outbid an AMC? And if so, how come I've never heard of it?

I don't think it happens that often (at least for now) but there are many, many practices of all shapes and sizes all over the country. It has happened before.

 

[sevoflurane]

I think that was in Norfolk, there were some interesting videos on youtube at the time.

Can you elaborate? Just curious.

 

[Arch Guillotti]

Can you elaborate? Just curious.

http://forums.studentdoctor.net/threads/anesthesia-providers-in-my-hometown-get-f-cked.719504/

 

[deleted126335]

During the mid 2000s when good jobs were plentiful, It was not uncommon for AMCs to lose contracts due to having trouble attracting and retaining quality people. With the supply of anesthesiologists meeting demand in many markets, that is becoming less of an issue.

 

[BLADEMDA]

Just because you own a hanmburger joint doesn't mean you can't compete against McDonalds on price. You can't do it. Yes, your quality is better but the customer (Hospital CEO, Surgeon, etc) must be willing to pay up for it. Most don't care and just want a hamburger. Any hamburger.

So, before you think that you have what it takes to start your own Carls Junior Franchise or 5 guys burger the fact remains those products cost more money.

AMCs can offer to staff the ER without a subsidy in return for the lucrative anesthesia contract. Or, they can agree to Staff the ER, Radiology and Anesthesia for ZERO subsidy when previously the CEO was paying millions of dollars per year.

 

[BuzzPhreed]

I think that was in Norfolk, there were some interesting videos on youtube at the time.

Riverside in Norfolk. Group that had been there 27+ years got the boot. The AMC in question was a completely bogus entity that sounded like another... ahem... "reputable" AMC and basically the management at the hospital didn't properly vet the AMC before giving them the contract.

Here's the whole story soup to nuts:

http://www.dailypress.com/business/...anesthesiology-gallery,0,4973082.storygallery

Now, just so happens Uncle Buzz knows some of the players involved. Don't ask me how. I won't tell you. For what it's worth - and I will say nothing more than that this is complete hearsay, rumor, and innuendo... and I won't reveal much - part of the problem was the higher-ups at the anesthesia group got a little comfy with the arrangement there. Management at the hospital didn't like it. I think this was a cut your nose to spite your face that led to the original firing and then subsequent hiring of this unknown (and completely bogus) AMC. A lot of heads rolled as a result. Long story short the hospital management team was looking to somehow get rid of one person - one person - in that group that they couldn't tolerate anymore. Talk about a Pyrrhic victory to be sure.

Moral of the story: sometimes you have to kiss a little ass, especially when your contract depends on it. (Doesn't mean you have to shove your whole head into someone's rectum, though.)

 

[urge]

Did the old group get the contract back, or did the hospital go to employee model?

Looks to me employee model.

 

[urge]

Moral of the story: sometimes you have to kiss a little ass, especially when your contract depends on it. (Doesn't mean you have to shove your whole head into someone's rectum, though.)

Of the 4 groups I interviewed coming out of residency there is only one still standing.

I would have made partner only to lose the contract a few years later.

 

[deleted131481]

Thanks for the replies first of all. We don't learn about this in residency although I'd certainly like to to.

A PP group with no subsidy probably makes less billing revenue than a large AMC covering the same site because of better volume-based insurer payments. Thus, the AMC can cover the site without a subsidy (and provide OB/call/etc coverage for free), because theu're making the money up with better rates from insurers. Small PP groups could theoretically do this, but they'd take a big financial hit and have very low salaries, making it tough to recruit good talent.

Are the rates the AMC gets from insurers making up for the 30%+ margin and the subsidies over the PP groups? It seems to me insurers would be wary of an AMC-dominated monopoly controlling all anesthesia services and would have some incentive to have multiple groups around so they could negotiate rates with one or the other. I understand current PP groups not being interested in expanding if they are going to be taking a hit, but for a new grad like me the "financial hit" a PP group takes still might be better than what the AMC offers. I certainly would rather make 250k at a PP group rather than 200k at an AMC, but not if it was 150k.

AMCs can offer to staff the ER without a subsidy in return for the lucrative anesthesia contract. Or, they can agree to Staff the ER, Radiology and Anesthesia for ZERO subsidy when previously the CEO was paying millions of dollars per year.

So the AMC makes up those millions of dollars in subsidies, as well as their 30% margin they get off the anesthesiologists from the increased rate they can bill for because they have greater volume than a PP group. Is that right?

Thanks again for the replies, this is informative for me.

 

[B-Bone]

Thanks for the replies first of all. We don't learn about this in residency although I'd certainly like to to.



Are the rates the AMC gets from insurers making up for the 30%+ margin and the subsidies over the PP groups? It seems to me insurers would be wary of an AMC-dominated monopoly controlling all anesthesia services and would have some incentive to have multiple groups around so they could negotiate rates with one or the other. I understand current PP groups not being interested in expanding if they are going to be taking a hit, but for a new grad like me the "financial hit" a PP group takes still might be better than what the AMC offers. I certainly would rather make 250k at a PP group rather than 200k at an AMC, but not if it was 150k.



So the AMC makes up those millions of dollars in subsidies, as well as their 30% margin they get off the anesthesiologists from the increased rate they can bill for because they have greater volume than a PP group. Is that right?

Thanks again for the replies, this is informative for me.

In this case, the insurance company is giving the AMC better reimbursement rates to guarantee their large volume of business. The AMC could just not accept that particular carrier, and the insurance company takes a huge hit (because of the volume). I'm sure the insurance carrier would love to negotiate with a bunch of smaller PP groups, but that's just not the reality of the marketplace.

The AMC makes its money with better insurance rates, lower reimbursement/worse benefits for docs, and likely with increased supervision ratios (approaching 4:1 average).

In reality, the physician reimbursement at a particular site will be higher at a PP group with a subsidy, but the subsidy itself is the reason the hospital may dump the PP group for an AMC.

You are correct in you assertion that a hospital would be very wary (and probably not even consider) signing a contract with a group of fresh residency grads who are still developing clinical skills, but more importantly, have no leadership/business/contract negotiation experience. It would be interesting/amusing to sit in on contract negotiations b/w a group of CA-3s and a hospital admin team with their phalanx of suits and lawyers.

 

[gasdoc77]

In this case, the insurance company is giving the AMC better reimbursement rates to guarantee their large volume of business. The AMC could just not accept that particular carrier, and the insurance company takes a huge hit (because of the volume). I'm sure the insurance carrier would love to negotiate with a bunch of smaller PP groups, but that's just not the reality of the marketplace.

The AMC makes its money with better insurance rates, lower reimbursement/worse benefits for docs, and likely with increased supervision ratios (approaching 4:1 average).

In reality, the physician reimbursement at a particular site will be higher at a PP group with a subsidy, but the subsidy itself is the reason the hospital may dump the PP group for an AMC.

You are correct in you assertion that a hospital would be very wary (and probably not even consider) signing a contract with a group of fresh residency grads who are still developing clinical skills, but more importantly, have no leadership/business/contract negotiation experience. It would be interesting/amusing to sit in on contract negotiations b/w a group of CA-3s and a hospital admin team with their phalanx of suits and lawyers.

The tragedy is that these very things may have a greater impact on the entirety of your working career than anything else, yet you get ZERO exposure to it during your training. This may be due to the fact that most of the attendings in academics have never sat at a table and had to negotiate contracts (through no fault of their own).

 

[Arch Guillotti]

The AMC makes its money with better insurance rates, lower reimbursement/worse benefits for docs, and likely with increased supervision ratios (approaching 4:1 average).

Or medical supervision at a ratio greater than 4:1.

 

[Gas you down]

any ideas on how to defend against very large AMC's that say they have enough providers to rotate people to the hospital that's looking to boot the old group?
obviously administration doesn't care about quality as long as cases get done, and surgeons aren't far behind. i agree with Dr. Rein's statement in his video that to get a good group together from scratch can take years.

 

[Gas you down]

Or medical supervision at a ratio greater than 4:1.

i thought four was the limit, is that not correct?

 

[RedAnesthesia]

My understanding is that medical direction max is 4:1 but supervision does not have a limit.
Red

 

[ether123]

this has happened in the past where a private practice group was able to convince the hospital that they r better suited to that hospital's needs than an AMC bec. they will remain focused on the hospital's needs (i think it was a specialty hospital) as opposed to an AMC which will be more generic. This is rare.

 

[deleted171991]

Is there a difference between "medical direction" and "supervision?"
There is a difference in the Medicare payment rules. Medical direction requires the seven steps (like ASA policy) and pays 100%, split 50-50 between the MD and CRNA. Supervision applies when the anesthesiologist is involved in more than 4 cases concurrently, or when s/he doesn't meet all the requirements for medical direction. Payment for supervision is based on 3 units (plus one additional if the anesthesiologist participated in induction) for the MD, and the usual 50% for the CRNA.

https://www.asahq.org/For-Members/Practice-Management/Practice-Management-FAQs.aspx

 

[panetrain]

Hi all,

I am a CA-1 considering job prospects, and the region I want to work in has majority market share by AMCs with some private groups. I will work at an AMC if it comes down to it, but it's certainly not my ideal choice.

I have a fairly limited understanding of private practice anesthesia, but my question is: can a private physician group outbid an AMC? And if so, how come I've never heard of it?

To my understanding, most AMCs have formed by buying out current private practices, usually physician-owned. Less commonly heard (correct me if I'm wrong), is an AMC outbidding a current incumbent group. These AMCs are corporation or private equity funds or whatever, so I imagine they are making a nice margin on all their employees. I don't know what number that is, but let's say 30%. Doesn't that give a significant margin that another group could outbid them?

Let's say Hospital A has anesthesia services through an AMC. The AMC makes 30% margin off the physician services in the practice. What's to stop an outside physician group from underbidding the incumbent AMC by 15%? Seems like that group would benefit from owning their own group, and have higher average salary than as an AMC employee.

I could see significant barriers including:
- Timing. Hospital contracts are not renewed every year, maybe more like every 5 years?
- Having available group/physicians. To take on a contract, obviously you need available physicians, and finding 10-20 anesthesiologists to bring in at once is no easy task. One choice is new grads, but I imagine a hospital would not be thrilled hiring a bunch of anesthesiologists straight out of residency. My idea (?fantasy) would be to partner with a local physician only group that would be willing to take on a bunch of new grads in expanding to a another hospital. This would give the hospital the comfort of an established group running the practice.
- Legal/business expertise. I'm sure the AMC has the lawyers, business connections, etc. which no independent group could hope to match.

I am curious to see what others think, and how far off my perceptions might be. It seems to me an above situation would have significant hurdles, but if they could be overcome everyone would benefit except the AMC.

AMC's gross margin is not typically 30%......it's typically 12-15%. AMC's often advertise a stipend free service, but many and maybe most collect subsidies from the hospital.