Don't Count on That Exclusive Contract

by
  • Chamberlin, Keith, MD, MBA
| Jul 21, 2014

We were warned.

California anesthesiologists should know by now that an exclusive contract to provide anesthesia services doesn’t provide the same level of job security as a tenured professorship or a seat on the Supreme Court.

As CSA Legal Counsel Phillip Goldberg, Esq., has reminded us more than once, “hospital administrators have extremely broad discretion in selecting the group to staff the hospital’s anesthesia department.”

Yet many anesthesiologists were surprised to learn recently that Dallas-based Tenet Healthcare is considering a contract with a national management company that would replace current contracts with the anesthesiology, emergency, and hospitalist departments in its 11 California hospitals.

The Tribune newspaper in San Luis Obispo reported that Tenet is reviewing proposals from three national companies to provide anesthesiology and other services at the 11 hospitals, and may choose one of them by December. This news has sparked pushback from the medical staff at Sierra Vista Regional Medical Center among other hospitals, and a letter of protest from the CMA that accused Tenet of acting “unilaterally and without regard to the varying needs and unique circumstances of each Tenet hospital.”

But Tenet’s action proves that having an “exclusive” contract means only one thing: You are the only one that can lose it.

From Tenet’s point of view, costs must be controlled. Apparently, Tenet has made it clear to the large contract management groups that it is looking for a no-subsidy arrangement for all its contracts. It’s nothing personal; it’s just business. But it is personal for many patients and physicians.

To its credit, Tenet is discussing the situation with local hospital medical staffs. Score one for establishing relationships with your facility. As Mr. Goldberg advised us last year, “Since anesthesiologists have limited legal bases for challenging decisions on anesthesia contracts, anesthesiologists should adopt a strategy of reducing hospital administrations’ inclination to replace one anesthesia group with another.”

However, the risk to the Tenet anesthesiology groups is very much alive.

What exactly is an “exclusive” anesthesia contract? It’s a contract that gives the contract holder (an individual, group, or company of any size) exclusive rights to provide specified services in a specified department. These contracts may cover the entire spectrum of anesthesiology services, or they may apply only to specific service lines: general, OB, cardiac, or pain management, for instance. They contain legal impediments that prevent competitors from exercising anesthesiology privileges. But exclusive contracts may still be terminated or lost to other bidders.

Most anesthesia groups hold tightly to the belief that exclusive contracts are highly desirable. Let’s look at some pros and cons.

On the positive side:

  • Exclusive contracts present legal barriers to encroachment by non-contract providers.
  • They foster a collegial relationship with the hospital, since the contract holders are by definition the preferred providers.
  • They make staffing easier, as they match known providers to the hospital’s known volume and case severity mix.
  • They make negotiating day-to-day issues easier, as one entity speaks for all the anesthesiology providers.

But on the negative side:

  • You can lose an exclusive contract. Anesthesia job security is based on quality, service, and (more recently) cost. Today, 80 per cent of anesthesia groups receive some subsidy from hospitals, which are strongly motivated to reduce it. Competitors often approach hospitals with business plans that eliminate the subsidy, and the decision for the hospital often comes down to cost. If your hospital privileges are tied to an exclusive contract, your ability to continue to practice will depend on your relationship with the new contract holder.
  • The contract holder will eventually experience pressure from the hospital to contract with its payers. There may be a phrase in the contract about “cooperation” with payers. Frequently this means that the contract holder must agree to a contract rate—good or bad.
  • If case volume or the number of anesthetizing locations increases, the contract may insist on the availability of additional providers, regardless of OR inefficiency or payer mix.
  • Many standard contracts allow either party to terminate without cause on 90 days following the first anniversary.

My point is that an exclusive contract for anesthesiology services, no matter how well constructed, is not the guarantee of job security that most anesthesiologists believe it is.

You are secure in your job only if you make the hospital believe that it cannot function without the anesthesiology group, because you are everywhere in the hospital doing everything. Rapid availability and high-quality service are paramount.

In these changing economic times where cost reduction is No. 1 on the list of hospital priorities, physician contracts are seen as a major cost to be trimmed. Mr. Goldberg counsels, “Where the motivating factor is economics, good relationships with hospital administration, other members of the medical staff, and hospital nursing staff can be invaluable. Although anesthesia groups do not control the outcome of a decision to change contracting groups, they do have an opportunity to participate in the process.”

We will watch the developments in the Tenet contract negotiation with great interest. Anesthesia group takeovers and buyouts are happening with increasing frequency in California, as corporations including Somnia and Sheridan extend their networks. Don’t say you weren’t warned.

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