Episode 115: A Washington State Case Study On The Future Of Anesthesia Employment And Noncompetes

This week, I am talking about labor markets in anesthesia, the regional sensitivity around this issue, and what it means for anesthesiologists. I also review a specific case study recorded not far from Washington.

Justin (01:09):
Initially this is a patchwork that is evolving in real time, and there are labor shortages all over the place, not only in anesthesia, but I mean all across the labor market at the same time, there’s huge amounts of unemployed people, which it’s, it’s a very crazy time in the last month. I’ve heard about more than one hospital canceling elective cases. Not because they have COVID capacity constraints, but because they can’t staff ORs with anesthesia staff because they just can’t find doctors to run the rooms. I’ve I’ve heard of others where they’re actually canceling elective surgeries because there’s nursing staff issues. So staffing is a recurring major problem right now and basic hospital economics. If there are ORs in a hospital and they’re not running, that’s a big problem. Cause ORs or hospitals make money. If they can’t get them to run, then you can bet that they’re trying desperately to get them to run at any given time and to staff them appropriately.

Justin (02:06):
The fact that hospitals are having trouble running ORs because of lack of anesthesia providers, anesthesiologists CRNs AAS, et cetera, shows just how significant this shortages. There’s a lot more I can say about this, but one area of the anesthesia labor market I want to focus on today specifically has to do with developments around non-competes. This has been something that has been in the crosshairs of the Biden administration. Back in July, president Biden issued an executive order, which he entitled the executive order on promoting competition in the American economy. And this executive order order had a specific intent specifically. It asks the federal trade commission to use its regulatory authority under the federal trade commission act to quote, curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility. Now, this is a federal expression of a state trend that has been happening for some time in various places.

Justin (03:14):
One that we’re going to talk about in a minute in Washington at the beginning of 2020, there was a rule enacted in the state of Washington that said unless you are a W2 wage earner of less than of sorry, of more than a hundred thousand or a 10 99 of more than 250,000, unless that was true of you, then a non-compete was unenforceable. Meaning if you made less than a hundred grand as a W2 or less than 250 K as a 10 99, then you can do whatever you want in terms of non-compete it would not be applicable to you. So in brief, as we think about the historical context of non-competes and the FTC federal trade commission, the FTC was founded in 1914 as a vehicle to give teeth to the antitrust legislation around the Sherman and Clayton antitrust acts, which came about because of, you know, oil, railroad manufacturing, monopolies, sort of after the civil war and the the rebuilding that happened post, then these big monopolies created an anti-competitive environment.

Justin (04:22):
And this is sort of the era of the, you know, the robber barons, the Titans of industry and the FTC was created in large part to keep them on a short leash. The mandate of the FTC, this is taken from the FTC website is to challenge anti-competitive mergers and business practices that could harm consumers by resulting in higher prices, lower quality, fewer choices, or reduced rates of innovation. The FTC will monitor business practices, review potential mergers, and challenge them when appropriate to ensure that the market works according to consumer preferences and not illegal practices. And so this is what I’m after today, understanding the anesthesia labor market, as it relates to this zeitgeists of the pendulum swinging towards the employee and the the rights of the employee and employee mobility. What does this mean for an anesthesiologist who wants to know, what does this mean in terms of employment, stability, compensation, stability.

Justin (05:27):
This is these dynamics are important to understand and are going to be determinative of, you know, future employment viability. Here’s the reason this matters for the individual. There are life decisions, big, important life decisions made on the basis of your employment. I have clients, I have friends, I myself am impacted by these and many people close to me have made decisions about preparedness for marriage about can I have kids? And when about, should I spend 500,000 or a million or 2 million on a house, et cetera, these are life altering decisions that are made with some assumptions baked in about, will my job work out? Will I be able to keep my job? Will I continue to earn what I’m earning now? Will I be forced to leave my city or my county or my state in the event that I lose my job, or if my employer loses the contract or whatever.

Justin (06:24):
So understanding this can help prevent hopefully regret and poor and costly decisions in your personal life. So here’s where we’re going with all of this. Right now we’ve got a pandemic, we’ve got executive orders, we’ve got supply constraints among anesthesia professionals, where we can only make quote unquote so many anesthesiologists every year, because as we’ve talked about in the past residency seats, the number of residency ACG, Emmy accredited anesthesia residency programs is kept by CMS. So we can’t make more than, you know, a certain number because it’s, it requires a congressional approval for budget increase in order to do so. So there’s this supply constraint CRNs and AAS are here to help in terms of the supply constraint, but there’s still a massive bulge of baby boomers moving into high utilization years of healthcare, where just demand for anesthesia is at an all time high and only getting much worse.

Justin (07:21):
It’s imagined the boa constrictor that swallowed a hippo that big bulge of the hippopotamus that is moving through the snake is about to get to the part of the curve where health care is needed as much as it ever has been as a demographic group with the baby boomers boomers. So that is the context with a specific case. I want to address today in the state of Washington, which I’ve been following closely for a handful of reasons. This case has to do with Bellingham anesthesia associates in Bellingham, Washington. I’m interested to see if this case becomes a bellwether for the direction of anesthesia employment in the future, and the we’ll call it employee portability and flexibility in the future. As a total aside, I learned today that the word bellwether comes from the middle ages in jolly old England, when shepherds would attach a bell to the neck of a castrated Ram in their herd, the shepherds were then track the sound of the bell to know which way the flock is going and would have an indication as to the direction of things.

Justin (08:25):
So don’t worry, I’m throwing that tidbit in for no charge. So will this case be a bellwether we will find out. So what happened in Bellingham? First of all, an official judgment came down just a couple of weeks ago August 26th, hot off the press as a consent decree. What that means is that this was a settlement essentially between the defendant, which is Bellingham, anesthesia associates, and the Washington state attorney general. They agreed to terms formally. They have signed off on it, and they’re waiting for the judge to approve it. This consent decree, stipulated that the stipulated, the following allegations, there were two allegations. This is what the attorney general said, Bellingham anesthesia associates did wrong. Number one, there were exclusive contracts that the anesthesia group had with different sites of service in Bellingham that were unnecessarily restrictive and were monopolistic. And anti-competitive because they were exclusive and required exclusivity.

Justin (09:25):
This was true with both the hospitals in the area, as well as the surgery centers. And that was the big thing for the Washington AIG. They didn’t take issue with exclusive hospital contracts, what they called acute care settings, but they did have issue with the exclusive contracts in the non-acute setting, namely the surgery centers. So that was number one, that was the first challenge that the AIG had with Bellingham. The second allegation was that there were non-competes that Bellingham, anesthesia associates had with its anesthesiologists in the contract of both partner physicians, as well as employed physicians, both of them, they had different non-competes and they were both unduly onerous per the updated and acceptable language, defining the rules in the state of Washington. The non-competes as they were most recently written were three years for partners and 18 months for non partners. So some additional context in 2020, the state of Washington, essentially, it was a little bit ahead of the curve compared to you know, prison Biden and his executive order.

Justin (10:32):
This is something that Washington had addressed prior to try to make employees more portable. They revised their laws to say you know, that employees have less than a hundred K or 10 99. Contractors have less than 250 would not have applicable. Non-Competes however, there were other language updates to the rules that in general said, employers, you need to loosen up a little bit. You need to make these non-competes less onerous prior to that rule being enacted in early 2020 at that time. So in 2019 and prior Bellingham, anesthesia associates had non-competes that were three years for partners. And three years for employees post this revision that Washington made in 2020, the partner non-compete stayed the same at three years, the employee non-competes were cut in half from three years to 18 months. By the way, all of this technical detail is outlined in the consent decree, which I’m going to link to that in a bunch of other resources that I’ve referenced in this episode.

Justin (11:35):
So if you go to APM success slash 1, 1, 5 per episode, one 15, you can read the consent decree. You can read all this other stuff, but the point is there has been this trend with Bellingham, anesthesia associates. They have loosened the rules for their physicians. One notch will say one when rules were passed in Washington a year ago, the attorney general circle back and said, Hey, listen, guys, we know you came a little bit in this direction, but we want you to come even further. And so per the consent decree, here’s what was agreed upon with the two sort of points of issue that the attorney general had. Number one, the exclusive contracts in both acute and non-acute settings. And number two, the onerous noncompetes here was the agreement that was reached between the attorney General’s office and the anesthesia Bellingham, anesthesia associates. Number one, with regards to the monopolistic contracts, Bellingham anesthesia associates is no longer permitted to have exclusive contracts with the non acute settings.

Justin (12:40):
So surgery centers basically, or office settings or dental anesthesia, there’s no exclusivity that will be enforceable in any of those settings. Number two, as it relates to the non-competes Bellingham has agreed to further moderate their non-competes effective immediately for any current employees or partners or past employees or partners to cut everything in half again. So partners have gone from a three-year non-compete to an 18 month non-compete and employees have gone from 18 months to a nine month non-compete. So what does this mean? It’s much easier now for any of these physicians to wait out the terms of their non-compete, which is good, but let’s think of it for a moment from the standpoint of practice owners. So for any partners in Bellingham, anesthesia, and any other practice owning physicians out there, this dynamic will affect you. It will, and it will affect the value of your business.

Justin (13:37):
So your business is valuable. If you, the less competition you have, if you’re the only game in town, you can do whatever you want and you can charge whatever you want to use. An extreme example. The more competition there is, the more your profits will be eaten into. The more your business value will go down. And this is just basic economic sort of relationship. So your business is worth less. And competition is more fierce. So all things being equal, you’d rather run a monopoly than a non monopoly because he can do whatever you want. So as the pendulum swings towards employees, this will probably impact the value of businesses of anesthesia groups from the partner standpoint furthermore, if there are other employers in town, this is going to shift the dynamic, you know, rather than saying, it’s literally illegal for you to go and work anywhere else.

Justin (14:30):
In these two counties, as an employer, as a practice owner, you now perhaps they’re going to need to take a different approach. And rather than threatening those who might leave, you want to entice employees to stay. You can’t just make it illegal to walk out the door. It’s the classic carrot versus the stick paradigm. The stick is where if you’re you’re threatened, if you leave, you’re going to get sued. The carrot is, we want you to stay. You know, here’s a snack for you because the environment in which you work, the pay, the job description, the perks are desirable. So retention costs for business owners may go up, which again, could impact business profitability, but perhaps everyone may be happier in the process. It’s hard to, there’s a lot of trickle-down effects here. These are some of the potentials that I had sort of brainstormed, as I was thinking about what all this could mean.

Justin (15:20):
If you’re an employed physician, what does this mean? That the fact that there’s this zeitgeists of employee rights, employee portability and employee, right to work. If there’s more competition and more rules about whether or not a non-compete is enforceable, that means you’re going to have a lot more options and you might not need to sell your house and leave the state. If you lose your job, or if you want to leave, there may be more carrot and less stick. So in the short run, you might have better benefits. You might have better perks at your job, whatever, cause they’re trying to entice you. However, here’s the other side of this coin. If, and when you become a partner, if you do the value of your business may be impaired, maybe diminished. And the certainty of ongoing employment may also be diminished. If there’s increased competitive forces, it’s kind of hard to say how that’s going to shake out.

Justin (16:12):
So this is just one case study. Again, I, I do think it’s going to be the first of many opportunities, the local attorneys general, whenever there is a revision in guidance from either the state or the fed. Sometimes they like to try to find a case to make their point. This just happens to be one, not far from where we are here in Portland, but I expect we’re going to see more and more of these in the coming days. In summary, I do like it as a you know, someone who works with individual doctors. I like it when doctors don’t need to sell their homes and move to new areas, if they want a new job, it’s really an unfortunate dynamic that, that is the case in certain places right now. And with certain companies there were some cases in employment where it’s necessary to protect special knowledge, trade secrets, you know, business secrets, where a non-compete really is the only way to do that.

Justin (17:12):
I have, it’s a bit long been my opinion that practice of clinical anesthesia just is not most of the time, one of those places. And to have these really onerous, non-competes applying to general anesthesiologists just doesn’t make a lot of sense. So I’m heartened to see increased portability for the average anesthesiologist. So good news for job seekers, maybe a headwind for practice owners. I’m really interested to see how this continues to unfold and I will continue to cross closely track it and provide you with updates as I see them. There’s a, a handful of really interesting articles I referenced as I put together the notes for today. So again, check out the show notes, APM success.com/one 15. If you’re interested in any additional reading as always, thanks for listening. And I’ll talk to you next week. If you liked what you heard this week, head on over to APM success.com, where you can find more content and free resources to help you build a successful career in anesthesia and pain management. If you want it to leave a review in iTunes, that also really appreciate thanks for using some of your valuable time to join me today on APM success.Yeah.