Author: Tony Mira
Negotiating an anesthesia services agreement involves a nuanced approach and an appreciation of the role that all the important parties play. To be successful in such a negotiation, anesthesia groups should consider the recommendations discussed in today’s alert.
Anesthesia Negotiation: Who Are the Players?
It used to be that when an anesthesia services agreement came due, the head of the group would sit down with the CEO or the CFO of the facility and work out any updates that might be needed. Usually, the corporate attorney would review the agreement, suggest a few modifications, and the deal would be done. Maybe the process was not always so simple for all groups; but, when there was no need for a financial subsidy, it was generally a perfunctory process.
Everything changed when anesthesia practices started needing financial support to meet the service requirements of the facility. No single activity created as much stress as determining how much money the facility should pay to make the practice viable. Invariably, the process involved the use of outside consultants, both on the practice side and the hospital side. No one term causes such anxiety in the minds of the anesthesia practice than Fair Market Value (FMV). It is an arcane calculation that is used to limit what the facility can pay to an anesthesia practice.
Many hospitals are now part of larger corporate networks. HCA currently owns hospitals in 186 cities. Tenet Healthcare operates 65 hospitals and 450 healthcare facilities. When this is the case, the negotiation of the anesthesia services agreement becomes even more complex. The facility administration may take the lead, but then the corporate hierarchy comes into play. Ultimately, the anesthesia practice is never quite clear with whom they are negotiating.
Each of these developments has taken the negotiation of an anesthesia services agreement to a new level of complexity. Essentially, the negotiation of a contract is a complex sale that requires the careful evaluation of all the various stakeholders in the relationship. The CEO may be the person who has to ultimately sign off on the agreement, but he is likely to require guidance and input from the various members of his internal staff, such as the CFO, the COO and the CMO, as well as the hospital system’s corporate office and its legal counsel. Managing such a complicated sale requires what consultants refer to as a stakeholder analysis.
Stakeholder analysis is a classic change management tool that consists of three distinct aspects. Step one involves the identification of each of the stakeholders, those individuals who will either benefit from the arrangement or who may be otherwise impacted by it. The best example of such a person is the CFO, who may not know much about the scope or services or the specific expectations of the practice, but who is very focused on the financial impact of any arrangement on the hospital’s bottom line. In a similar vein, the CMO may have concerns about some of the members of the practice and the feedback he is getting from patients about their satisfaction with the group’s customer service. It should also be noted that the corporate legal team may have legal concerns that only focus on how the subsidy gets paid to the practice and who bears the risk for shortfalls in collections. Needless to say, the first step in any contract renegotiation is the identification of each of the stakeholders and their influence in the process.
Stakeholder analysis suggests that each stakeholder’s impact can be evaluated on two axes: power and influence. The point of the exercise is to recognize and acknowledge the role each stakeholder may play in advising management as to how the deal should be structured and how it should be monitored and managed. A careful assessment of each stakeholder’s goals and objectives may provide invaluable insight and may provide a perspective that makes the deal easier to sell. It is important to note that hospital administrators tend to view anesthesia service agreements through a very different lens than anesthesia providers. When an anesthesia practice is proposing a new contract, the presentation must meet three criteria. It must provide context, be concise and cogent (the three Cs). Presenting contractual options requires that context of each piece of information is clear; in other words, there is no room for fluff. The answer to the following question must always be clear: why are we telling you this? Everyone’s time in precious. The presentation must get right to the point but clearly demonstrate that every reasonable concern or issue has been taken into consideration. Cogency is key. The case must be compelling. Achieving all this may require the assistance of an outside consultant for purposes of packaging, but the details must come from the practice.
Here is a snapshot of the role each stakeholder plays:
- CEOs tend to be big-picture people who like global solutions. They are willing to sign off on an agreement that has been evaluated and validated by their team. CEOs always have a particular vision. They like solutions that enhance their vision. They especially like solutions that make them look good with corporate.
- Corporate legal responds to a whole different set of objectives. Their focus is on minimizing risk to the facility. They tend not to like exceptions and prefer to see solutions consistent with corporate policy.
- CFOs are money people. They like numbers but don’t always want lots of data. Their primary focus is the hospital’s bottom line. They focus on their budget and are wary of any options that might put their budget at risk.
- COOs like operational efficiency and coordination of the various specialties that work in the operating room. They want solutions not problems.
- CMOs tend to look at operations from a provider perspective. They want harmony. Their view of anesthesia is that it should be focused on ensuring the operating rooms run efficiently.
- O.R. staff tend to be very focused on customer service issues. They are often focused on outlier providers who create problems in the daily management of the schedule.
- Group Members tend to fall into three categories: doers, non-doers and un-doers. Nothing is more important than having the practice speak with one voice and act consistently. The ultimate management challenge is to address the concerns of the un-doers so they come into time.
Stakeholder analysis allows the practice not only to make compelling case but to ensure that the arrangement is manageable. A successful entrepreneur was once asked how he was able to manage a wide range of businesses. “Simple,” he said. “You get enough people believing the business is worth it, and it will happen.” And so it is with hospital contracts. Anyone who says negotiating an appropriate hospital contract is easy is either a bad negotiator or a bad liar. It is often said that anyone can get the deal right for today, but will it still be right tomorrow? Such is the complexity of the process in the current environment.