Anesthesia Business Consultants: Communique winter11

WINTER2011 VOLUME16,ISSUE1
ANESTHESIA
BUSINESSCONSULTANTS
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 . . . . . . . . . . . . . . . . . . . . 1
Evolving Organizations and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Are Anesthesia Providers DestinedTo Become Hospital Employees? . . . . . . . . . . . . . . . . 3
Federal Healthcare Reform: The Push for Quality, Efficiency and Integration . . . . . . . . . 6
Size Matters: AntitrustWarning Signs in Anesthesia Group and Pain Group Mergers . . 9
The PROMETHEUS®
Payment Model: Dividing the Pie for an Episode of Care . . . . . . 12
Group to Group: The Impact of Organizational Culture . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Where DoWe Fit InThe Alphabet Soup? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Business Consolidations: Lessons Learned DuringThe Acquisition of
Associated Anesthesiologists, Inc., by Anesthesia Business Consultants, LLC . . . . . . . . . 25
Anesthetist Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Event Calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Continued on page 4
How to Increase Practice
Revenue by Improving
OR Efficiency
Jeffry A. Peters, MBA
President, Surgical Directions, LLC, Chicago, IL
Anesthesia Business Consultants is proud to be a

The Communiqué Winter 2011 Page 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.
Forsomeanesthesiologists,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 Mira
President and CEO

Background
ThemajorityofAmericananesthesiologists
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, CPC
Vice 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 Jody.Locke@
AnesthesiaLLC.com.

How to Increase Practice Revenue by Improving OR Efficiency
Continued 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,
“raisingthebar”willnotalienatesurgeons.
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.Themaincauseisinadequatepre-
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.
Effectivepre-opassessmentprocesses
notonlyreducesame-daycancellationand
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
ORshaveampleopportunitytostreamline
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 boost
OR volume also increase anesthesia
practice revenue.
• Increasing utilization rates, decreas-
ing case delays and cutting turnover
times will help anesthesia control
costs and work hours.
• Helping the OR reduce expenses
will 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 Benchmarks
Best practices and performance targets for OR productivity and profitability.
Metric Benchmark
Schedule 8-hour blocks þ
Utilization 75% minimum requirement þ
Open rooms 20% þ
Pre-op prep Phone screen (3-5 days prior) þ
Nursing model Specialty teams, flexible staffing þ
Cancellations <1% þ
On-time starts ≥90% (within 5-7 minutes) þ
Turnover time (IP) 20-35 minutes þ
Turnover 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 jpeters@surgicaldirections.com.
Responsibilities
n Plan and lead rapid change in OR
policies and procedures
n Orient the OR toward surgeon service
n Redesign the block system to improve
utilization and surgeon access
n Sponsor and direct operational
improvement initiatives
n 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 Governance
The 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
numeroustypesoforganizationscanbecome
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 Integration
Kathryn 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
amonghealthcareproviders,includingthe
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-
patientrelationship). 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
SharedSavingsProgramduetotheunique
nature of anesthesiology and the limited
resources of those anesthesiologists that
are solo and small practice providers.
Center for Medicare and
Medicaid Innovation
TheCenterforMedicareandMedicaid
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 8
3
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
TheHospitalValue-BasedPurchasing
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
qualityandefficiencyobjectives,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.
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 adresevic@thehlp.com.
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
khicknercruz@thehlp.com.
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.
Contractsretrainingtradecomeintwo
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
acquiringandacquiredpartiesinmergers,
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 Mergers
Daniel 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,
coordinatedprogramofcaremanagement
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 Mergers

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 Dbrown@
thehlp.com.
Neda Mirafzali, Esq., is an associate
attorneywiththeHealthLawPartners,PC
andpracticesinallareasofhealthcarelaw,
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
nmirafzali@thehlp.com.
Daniel B. Brown Neda Mirafzali

The PROMETHEUS Payment
®
Model
Dividing the Pie for an Episode of Care
Karin 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,andpatientexperience.
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
percentageoftheECRsforthecontingency
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.
PROMETHEUS
Provider 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
inanyofthediagnosesfieldsorandofclaims
for a procedure related to: adverse effects of
drugs, overdose, poisoning, complications
of implanted device, complications of
surgicalprocedureormedicalcare,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
providers
if not spent on PACs
Hip Arthroplasty 2076 $47.1 million $7.8 million $3.9 million
Knee 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
The PROMETHEUS Payment®
Model
Dividing the Pie for an Episode of Care
ASA Committee on Performance
and Outcome Measurement
Annual Report 2009
“Perioperative Events That May Be Used To Assess
Patterns 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 site
10. Operation on incorrect patient
11. Medication error
12. Unplanned ICU admission
13. Intraoperative awareness
14. Unrecognized difficult airway
15. Reintubation
16. Dental trauma
17. Perioperative aspiration
18. Vascular access complication, including vascular injury or pneumothorax
19. Pneumothorax following attempted vascular access or regional anesthesia
20. Infection following epidural or spinal anesthesia
21. Epidural hematoma following spinal or epidural anesthesia
22. High spinal
23. Postdural puncture headache
24. Major systemic local anesthetic toxicity
25. Peripheral neurologic deficit following regional anesthesia
26. 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,andperhapsthe
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:
• Be willing to be accountable for the
quality, cost, and overall care
• Participate in the Medicare Shared
Savings Program for at least 3 years
• Have the appropriate legal structure
• Have a sufficient number of
professionals
• Provide specific information to the
Secretary of HHB
• Maintain a management structure
including clinical and administrative
systems
• Adopt a process for:
– Promoting evidence-based med-
icine and patient engagement
– Reporting on quality and cost
measures, and
– Coordinating care
• Demonstrate to the Secretary that it
meets 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. SheconcentratesonABC’spartnerships
including those with ePREOP and Surgical
Directions and serves as a Medicare and
healthcare reform expert. She can be reached
at Karin.Bierstein@AnesthesiaLLC.com.

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 of
convenience to further each of its
individual physician’s goals.
• It has little, if any, organizational
structure beyond the rudiments
required by law, and even those
formalities are rarely followed.
• The relationship among its
members 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 to
its circumstances in respect to
the hospital, competition, referral
sources, and the medical staff.
• Its sole purpose for existence is to
provide 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 completely
commoditized. 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
beingforhisorherownbenefit,thereisno
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 further
each 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 minimum
required formalities to protect its
structure from legal attack.
• The group members have more
or 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 level
of 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.
• Its sole purpose for existence is to
provide 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
theneedfortheclub’scontinuedexistence,
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 Culture
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 required
formalities to protect its structure
from legal attack.
• The group members have good
relationships among themselves,
understanding that fulfilling their
individual objectives requires that
they align themselves with others.
• The group engages in a high level of
planning 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.
• Its chief purpose for existence is to
provide 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:
• It exists to further the group’s long
term goals.
• The group follows the required
formalities to protect its structure
from legal attack.
• The group members have well
developed, positive relationships
among themselves, understanding
that they will maximize their long
term interests by maximizing the
group’s interests.
• The group engages in high level
strategy 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.
• Its chief purpose for existence is to
develop 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 are
delivered 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.
Inherentinthisstrategicmanagement
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
simplybeingweddedtoprovidingservices
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.
Unifiedhasidentifiedtheopportunity
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,eveninrespectoftheirexclusive
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.
Inevaluatingthismergeropportunity,
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
markweiss@advisorylawgroup.com.

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.
Therearevarioustraditionalobstacles
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 Madore
Vice President for Practice Management, ABC

Anesthesia Business Consultants: Communique winter11

Anesthesia Business Consultants: Communique winter11

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