Episode 27: The Paradox of Anesthesiologist Employment Demand – Understanding If Your Private Practice Job Is Safe

Oct 1, 2019


This Episode

Solo Episode with Justin Harvey

You Will Learn

 – Why is the ACGME system limited in the number of new anesthesiologists it can create?
 – What types of practice dynamics put a group at risk of being replaced as the anesthesia care providers for a certain site of service?
 – What factors motivate a group of physicians to want to sell a practice to a bigger group?
 – How can you insulate yourself from potential job risk within your current practice?

Resources & Links

Minnesota anesthesia group acquired by national group (2016)

Minnesota hospital replaces anesthesia group (2019)

A local California anesthesia group replaced with national group (2019)

A Michigan anesthesia group of over 100 MDs almost loses contract (2019)

A 17 physician AZ practice sells to a national group (2019)

Some hospitals trying to replace groups with directly-employed MDs and CRNAs (2019)

A NY private group loses a contract and closes down, MDs relocate (2018)

A North Carolina anesthesia group replaced (2018)

Dr. Bimal Massand on why his group decided not to be acquired (2018)

A list of 23 anesthesia group mergers/acquisitions (2017)



In this episode I discuss the strange phenomenon of anesthesiologists’ jobs being at risk, in spite of the massive demand for anesthesiologists nationally.  We look at the reasons why your job is secure, and other “micro factors” that can be indicators of a less stable employment situation.  This should help you evaluate the stability of a current or prospective job situation.

Show notes available at www.anesthesiasuccess.com/27

Show Transcript

(This transcript was auto-generated)


Justin: 00:02 – – What’s up everybody? It’s Justin. Hope you’re doing great. This is episode at 27 of the anesthesia success podcast. Thanks for joining today. I am flying solo again to discuss a topic of some interest hopefully to you and to me, and it has to do with what I’m calling the paradox of anesthesiologist employment demand meaning we’ve talked about on this show a fair number of times in the past, anesthesiologists are significantly in demand, whether it’s in an urban setting or a rural setting on the coast or in the Midwest or in the South, wherever anesthesiologists are in demand and it’s an in demand skillset. There’s a lot of reasons for this. Economics one Oh one supply and demand is like a Seesaw. So on the supply goes down of something, the demand goes up. When the demand for something is high, the prices go up. So what this means right now is that the supply of anesthesiologist is down relative to the need.

Justin: 01:39 – – There’s not enough of them. The demand for anesthesiologist is high and as a result, you as an anesthesiologist should have every expectation that you can continue to earn a great wage into the foreseeable future. Now, there are several factors that contribute meaningfully to your job security longterm. And I want to address a couple of them. And the theme for what we’re going to discuss today is how at a macro level, when we look at anesthesiologist broadly, all across America, there’s a lot of reason to be optimistic about the ongoing demand. However, there are micro instances at a practice level or at a like a geographic locale in a certain municipality level where there can be threats to your job security and it can come up quite quickly. So even in the midst of being in demand, your practice may be at risk and your job may be at risk in that context.

Justin: 02:31 – – So I want to talk about some of these factors driving the macro demand and the micro risks to help you be as informed as you can be about your profession. So there’s a couple of reasons for the macro demand, and this is going to be pretty obvious. One of them has to do with the fact that baby boomers the current generation aged 55 to 75 right now, they’re a large cohort of humanity that’s kind of moving across the bell curve and they’re getting older and older requiring more and more procedures requiring as time passes and as they move into the elderly stages of their lives, that’s only going to increase because of this huge population bulge that’s continuing to age into years where there’s going to be higher medical costs associated with their care. The anesthesiologists are going to be more and more in demand to do all these surgeries.

Justin: 03:17 – – So that’s one factor relating to the patient population. There’s another significant factor that anesthesiologists are in demand and rather than it relating to the patient population, it has more to do with how the supply of anesthesiologists is created. And this is something that many of you are probably aware of to some extent, but the, the capability of the system in air quotes to create more anesthesiologists is quite limited. And the reason is we can’t just produce anesthesiologists Willy nilly because it takes a long time. And there’s a cap on residency programs funded by CMS. So CMS is the center for Medicare and Medicaid services. CMS provides funding to hospitals with residency programs to pay the residents. So basically you as an anesthesia resident, you get paid by your hospital and then the hospital gets paid by CMS based on, you know, a previously agreed upon cap for CMS is going to fund X number of seats at, for example, university of Pennsylvania hospital.

Justin: 04:19 – – And they have, you know, say 20 residents in a, in a class of anesthesia residents. And so they’re gonna get compensated for some or all of those seats by CMS. And then that compensation passes through to the residents. Now that’s great. And CMS, AC GME funding is essentially defined by the law. So this, this takes, this creates a big challenge in how we can educate more physicians. And this is true across all specialties right now. So if we want to say start, you know, increasing by 25% the output of the ACGM system to create anesthesiologists a, it’s a, it’s like turning an aircraft carrier because it’s going to require an amendment in the CMS funding of residency seats as well as the expansion of existing programs and or starting up new programs and new academic hospitals in order to increase the supply, increase the throughput. And obviously this is, there’s massive systemic inertia.

Justin: 05:22 – – It’s hard to change the laws. It just takes a long time to get our friends in Washington to agree on anything. And then furthermore, increasing AC GME throughput at a hospital. I mean I don’t know anything about that, but infrastructural changes in education also are very complex and take a long time. So there’s a lot of headwinds to being able to increase the number of anesthesiologists that the system creates. I like to liken this to another industry where there are similar market dynamics and it’s aircraft manufacturing. So whenever Delta, for example, needs a new fleet of seven 87 Dreamliners from Boeing, there’s a massive lead time cause it takes years and years and years to design, design and batch manufacturer a big plane. So similarly, even if CMS tomorrow doubled the cap for graduate medical education, it would require current undergraduates who are now, you know, studying biology 1920 years old to decide to go to med school and then to decide to do a four year residency.

Justin: 06:25 – – And we’re talking at least we’re, you know, eight to 10 years away from those changes. If CMS change today, we’re a decade away from being able to increase the supply meaningfully of anesthesia attending physicians because it takes a long time to quote unquote and make an anesthesiologist. There probably won’t be a glow of anesthesiologists anytime soon. And I want to take a brief moment and make an aside to compare this to the way that CRNs are created and that process and the way it attaches to funding. So CRNs are not subject to the ACGM any limitations and not subject to CMS seats and reimbursement to hospitals for managing these programs. It’s a graduate program. It’s a graduate program paid for by the CR and a candidate themselves. And what this means is the cost isn’t going to be subject to a statutory change. It just means if more people wanted to go to CNA school, they could do that and they would take out loans themselves, which by the way, those loans are in many cases a federal student loans that require no credit underwriting.

Justin: 07:29 – – So the way that the current system works for grad plus loans in the federal loan system, anyone who gets accepted into a graduate degree program, regardless of their credit worthiness, regardless of their debt, they’re able to fund the cost, the cost of that program up to the published cost online. Meaning, if I get into a a school and, or a CNA program and it’s going to be, I don’t know, $70,000 a year for two years, I can get that from the federal government to pay for my tuition without having to worry about any credit considerations. Now I still have to deal with the debt on the back end, but it’s much more flexible and fluid. So as the CRM, a demand continues to increase, the ability of the CRNI population to ratchet up to meet that demand much more quickly is, is going to continue.

Justin: 08:20 – – Meaning there, there’s very few hurdles relatively speaking to just having more CRNs out there. Now eventually because the CRNs population can adjust more quickly, they’re more quickly going to get to a point where it becomes less in demand from a career standpoint because the compensation will, if market forces work themselves out, which by the way, in health care they frequently don’t, but eventually the compensation for the CRNs will probably come down. I was speaking with another industry professional the other day and they were saying that the CRN, a peak, the peak need for CRNs, it’s growing right now and they expect it’s going to kind of top out in 2020 whereas the need for anesthesiologists and the demand is going to continue to be very, very, very strong for the reasons that I previously mentioned. Now again, there’s a lot more complicated dynamics about the interactions between anesthesiologists and CRNs and potential autonomous tRNA practice and different care models, et cetera, that are beyond the scope of this discussion.

Justin: 09:14 – – But the point is the population of CRNs is going to be able to adjust more quickly because of the lack of constraint. Whereas anesthesiologists, it’s always just going to be a really long lead time and a discrete population. However these, the macro strength of your position, of your employability, of the demand for your skillset doesn’t tell the whole story when it comes to your employment. So at a macro level, we all agree you’re very employable at a really competitive wage. However, there are micro risks, micro risks to you being able to find a job and keep a job. And these risks depend on geography, practice model and other exogenous factors, things that are impacting, you know, a small area of practice, a health system, a hospital, et cetera. And the reason that I’m unpacking these risks are twofold. One is to help prepare you hopefully from a career in mindset standpoint and to be able to ask the right questions when you’re looking at prospective employment or if you’re looking at your current employment and trying to understand how these micro risks apply to your practice.

Justin: 10:17 – – And secondly, to be able to prepare from a financial standpoint. Because as we always say, knowledge is power. The more that you know about the inherent riskiness of the micro factors of your current anesthesia employment the better prepared you can be. Now, this is almost a hundred percent all the things I’m going to talk about today, almost a hundred percent outside of academic medicine. So about 49% of anesthesiologists in America are currently employed in academic institutions. Academic institutions by definition are just much more stable in the demand and are not subject to a lot of the micro risks. Then I’m going to reference here. So if you’re an academic medicine stay tuned. You’ve got, we’ve got some great podcasts coming up in a couple of weeks. But this is going to be more impacting your colleagues in the private practice side of things. So micro factor number one I want to talk about as group contracting specifically, how solid is the contract and the relationship that your group has with the sites where it provides anesthesia services?

Justin: 11:15 – – Is that site, is that hospital or surgery centers? Are they happy with the relationship? Does that hospital find that it has issues staffing in O R or an ICU or that there are other tense relationships between maybe the leaders of the anesthesia group or groups and the the hospital or the healthcare system. If you have a contract with six sites of service, for example, or a whole health system, then it is more likely to be a sticky relationship. Meaning it’s going to be difficult to unwind because there’s a lot more logistical challenge to finding a group of 200 or 300 anesthesiologists come in and replace an existing contract. So bigger contracts as a rule, and this isn’t all the time, but as a rule, they’re a little bit stickier if it’s a smaller group with a, a contract with one hospital or a few surgery centers.

Justin: 12:07 – – You know from a logistic standpoint, it’s just easier to get a group of 10 anesthesiologists than it is to get a group of a hundred so the size of that contract, the number of sites of service where your group is providing anesthesia care is an important factor when it comes to the stability of that arrangement. So as I said, the size is no guarantee it helps, but it’s no guarantee as to the longevity of a potential relationship. And I want to reference a couple of specific articles that I’ve read recently as it relates to a anesthesia groups being replaced. So in Minnesota recently there was a good size of practice of 37 doctors and 68 CRNs who lost a contract with a major hospital. And this wasn’t the case of a smaller group getting edged out. This was a larger group with backing from an either even bigger national group and they lost this contract for anesthesia services.

Justin: 12:57 – – So all of these doctors and CRNs presumably are going to be out of work whenever this contract expires. The reasons for it are complex and frankly we can’t possibly have all the information cause it has to do with sort of the dynamics of communication in staffing between the hospital and the group. But there were issues that the hospital had with the way that the anesthesia group was staffing the anesthesia needs and they weren’t happy. So they did what’s called an RFP. They put out a request for proposal or they say they kind of wave the flag and they say we as a site of service, as a hospital, as a health system, we’re not happy with our current arrangement. So we’re putting the current group on notice that they need to come back to us with basically a list of how they’re going to do better.

Justin: 13:41 – – And in addition, we’re looking outside of this group to other groups nationally to see who else is interested in this business, how, how competitively can you price it, what is the you know, the composition of the clinicians and the service provided going to be and do we like that better? So they’re basically in the RFP process they’re saying we’re not happy and we’re thinking about switching groups, switching anesthesia provider groups. So that leads to micro factor number two in addition to group contracting. And it’s, it’s very much related and it has to do with industry consolidation. So this is more like a broad trend that has applicability in specific markets or specific practices. There are a few trends driving industry consolidation and understanding them can inform the type of job that you want to take as well as the type of position that you might be in right now in your current job.

Justin: 14:32 – – So industry consolidation and how it impacts you is an important thing to wrap your brain around. When an anesthesiology practice gets bought out, in many cases there are physician owners who are the shareholders. What this means is that they are the business owners who are getting a split up the bottom line, the profits of the business. And in many cases these physician owners are getting along in years. And there’s a couple things happening. Number one is they’re looking to get cash in exchange for the value of the business they own for their own retirement plan. They want to get paid for all the equity in Goodwill that they’ve built up in the practice in which they’re currently operating. In financial parlance, we call this a liquidity event, meaning you take an illiquid asset like an anesthesia practice and you get paid cash for it by you know, for example a national group and national anesthesia group.

Justin: 15:23 – – And then you get liquidity in exchange, get cash. And so we call this, you know, a liquidity event. We’re getting liquid. The second thing to be aware of here is that you know, these physician owners, they probably in addition to wanting to get paid, they just don’t want to be responsible, responsible anymore for the annoying burden of healthcare compliance and operations. Being a business owner is annoying whenever the, you know, the copier is broken, somebody needs to figure out how to get it fixed and if it’s not the office manager, it’s, it falls to literally one of the, the business owners to make sure that things are functioning properly. If any of the relationships with any of the sites of service are stressed or strained, the business owner, I. E. the physician equity owners are the ones on the hook to try to preserve that relationship.

Justin: 16:05 – – And so the business and operations side of things can be a significant burden on top of clinical duties. And so again, these physicians who are in many cases more advanced in their career, they, there comes a point at what, you just don’t want to deal with that stuff anymore. You want to get someone else to handle all that hassle. And so what this means that is that a sale to a group, another outside group who has infrastructure, who has resources, who can bring those resources to bear on the operations and business end of things can make your life better than you’re just running anesthesia and you’re collecting a salary and you’re not worrying about negotiating contracts or fixing the copy machine or staffing or any of the other issues that a business owner has to deal with. Now the national group is worrying about that.

Justin: 16:50 – – Now this is a two edged sword. Obviously this, this transaction on the plus side, there can be resources that this outside group brings in terms of leadership, specialization, legal and compliance support, a business acumen, et cetera, that a smaller group would have difficulty maintaining in a more and more competitive environment. On the other hand, this transaction, this sale of a private practice of a smaller group, this brings change. Now change can be good or bad but on the, on the potential downside, sometimes new management might not jive with existing positions. Sometimes junior physicians who were on a partnership track will find themselves left out in the cold where maybe they were earning less for awhile in hopes of becoming a partner, taking a discount on their salary. With the understanding that in two or three or four years they’re going to be offered an equity position, but then that chance is taken away whenever the practice is sold.

Justin: 17:44 – – So this is an important thing to be aware of. If you’re, you know, a junior physician on a partnership track understanding what is the liquidity possibility here what is the likelihood that this group is going to get sold to a bigger group and it could potentially snatch away that partnership opportunity. One example of the challenges presented in this potential transition can be found in our previous example of the hundred and five clinician practice in Minnesota that I mentioned where they had a contract with a major hospital. Ultimately that hospital wasn’t pleased with the availability of the anesthesia teams as they said, and they felt like it was costing them money and ultimately they replaced this group with another. Now. Again, like I said, it’s hard to know whether or not what they were demanding from the group was reasonable. We, we couldn’t possibly be privy to that information, but what we can see is a couple of high level facts that I want to point out and what I didn’t mention previously was that this RFP that happened just a few months ago in Minnesota, it came with a group, the existing group there was sold three years ago to a bigger national group and at that time, instead of, you know, right now this group has 37 doctors and 68 CRNs as they just reported at the time of the sale in 2016 they had 37 doctors and 91 CRNs, so 128 clinicians instead of 105 so whatever this means, we can see that in the last three years, the head count of their practice has has diminished from 128 to 105 now again, there might be business or operational reasons for that.

Justin: 19:12 – – We really couldn’t have any idea, but the point is this purchase of this practice catalyzed change catalyzed significant diminishing the number of clinicians who are practicing in this particular practice. And you can imagine, you know, that has implications on the people who are doing the work. I don’t know if they are all working harder as a result or maybe one of the sites of service. Maybe there were a couple of surgery centers that shut down and they just didn’t need as many clinicians. I have no idea. But the point is there’s changes and it, it’s definitely possible that the changes weren’t good. But this sale was presented as a great opportunity for the practice with regards to continuity and you know, they went, whenever these consolidation events happen, it’s always pitched as a win win. You know, the, the doctors are able to give up the operational and business responsibilities and turn them over to a management group that will be more presumably, you know, more qualified to be able to make management decisions and have better data to be able to negotiate contracts and all those things.

Justin: 20:13 – – But the fact is it doesn’t, it doesn’t always go great. And again, it’s impossible to know the real story behind the story here. But what we see is there was a purchase of a practice that happened three years ago and now today and RFP was put out in this practice as being replaced. Would that, would that RFP still have happened if the practice hadn’t been sold? And if there hadn’t been new leadership, it’s impossible to say. If you find yourself in this position where there’s a new management team coming in and there’s kind of a, a new sheriff in town, so to speak, this could bring about changes and it’s important to be able to prepare yourself for those potential changes. So again, this is a very micro example. This isn’t industry-wide as it relates to this practice instance, but it is impacting real doctors lives.

Justin: 20:59 – – And you know, if you just go to google.com and you were to Google, like you know, anesthesia consolidation or anesthesia buyout or PR anesthesia, practice purchase and search on the news tab, you’ll be able to see all of the big acquisitions and the mergers that have happened in the last couple of years. And you’re gonna get a sense for the fact that this is happening. This is really impacting people. This is causing, in some cases it’s a good deal. In some cases it’s not. But the point is it can bring about change that not all the clinicians might like. So how do you, as a an anesthesiologist, how do you prepare for these potential micro risks, even in spite of the fact that you have macro strength with regards to the demand for your services at a micro level, at a practice level, at a specific municipality, geographic locale.

Justin: 21:45 – – There can be risk depending on what’s going on. So there’s a couple of things you can do to help mitigate these career risks. The first is to let these things inform your job search. So a, I shouldn’t say your job search or the way you’re thinking about your current employment. So if you’re looking at an independent group potentially who could be a juicy buyout target with great margins and great work life balance and an opportunity for partnership as it stands today. However, you know behind the scenes, it’s possible that this group, the equity owners of this group are being courted by national group. Make sure that you’re very clear on the expectations for you coming in as a junior attending position if you’re on a partnership track. So if you could go somewhere else and make 400 and they’re offering to bring you in at two 75 for three years and then give you a chance to, you know, buy in or earn into an equity stake, make sure that you’re clear on what’s going to happen if, if that transaction happens before you’re a partner.

Justin: 22:41 – – Because if you’re a partner, you own a piece of the business and then whenever that practice gets sold, you get a windfall. You get a big chunk of money associated with the percentage of the business that you own. But if you work two and a half years at a discounted salary and then the, you know, two and a half years into a three year track, the transaction happens and all of your equity owning physician colleagues get a payout in the millions of dollars for the very valuable stake of the business that they own. And you were really, really, really close, you’re probably not going to get a prorated share. They’re probably not going to say, you know what, you work two thirds of the time that you owed. We’re going to give you two thirds of what you would’ve had if you were a full partner. Now, they may give you some sort of consolation prize, but it’s important to know this in advance so that you’re not left out in the cold whenever the deal happens.

Justin: 23:27 – – The second thing you should know is that there are a few clinicians in the private setting that are going to be 100% immune to micro risks. So doesn’t matter how Bulletproof you think your contract is or you think your group is. There’s always a chance that this could happen. And so one of the ways that you can help keep this stress level down in your life is to the extent possible, keep your fixed living expenses reasonable. Don’t have a highly levered lifestyle where you’ve got a bunch of payments on two cars and a big house and a beach house and you are required. Like you need to keep on making a very high income every month in order to continue to finance that lifestyle. Cause that’s a stressful way to live to begin with. And if all of that happens and then you find out your group is about to lose a contract because they lost an RFP or there’s a buyout happening and the new management team that comes in offers terms of employment that are just very unfavorable, then you’re going to be in a really tough spot because you’ve built the lifestyle.

Justin: 24:24 – – But it’s difficult to maintain. So as you are maturing in your career as a physician, think about, you know, how do I, how do I build mechanisms into my life? Like a safety valve. If you lose your job and you have very low fixed expenses, it gives you a lot of financial flexibility. Plus if you have maybe three or six months in an emergency fund in cash sitting in a high yield savings account, earning a couple percent, that’s similarly going to help you not be stressed as you think about the future. And a final option that I want to just throw out is that you know, there’s an option to do something like locums work where it’s not ideal, but it can be a bandaid for a period of time where you can use this very special skillset that you have, which you can use to make a lot of money somewhere.

Justin: 25:08 – – And you can do short term assignments, different places in America where you can kind of continue to see different practice models while you are earning a really great wage. So I’m going to link in the show notes. So if anybody, any listeners, anesthesia, success.com/ 27 I want to link to a bunch of resources. I want to link to a number of you know, consolidation stories that have happened in the news that you can see of practice buy outs and some of the impacts of contracts that have fallen through or RFPs that have gone out where an anesthesia group has been replaced. So you can see this happens to real doctors with real lives, with real bills to pay. And it’s not, we’re not just speaking in vague hypotheticals here. I also, I’ll throw out some links to, you know, some, there’s some great articles out there about how to use locums anesthesia to be able to build wealth.

Justin: 25:58 – – You know, if you have, even if you’re currently employed, you can do locums work. If you have a bunch of PTO, you can take a week and do some locums work and make additional money to be able to hasten your journey towards financial independence. And then finally, here’s the note that I want to end on. It’s good to be aware of the risks, but it’s also helpful to understand, you know, the, the scope of the risk. Like, what’s the, what’s the probability of one of these events happening to you and having a negative impact. And I can tell you that if you have a couple of these, I’ll call them high risk micro factors that apply to your practice. Meaning you’re in a smaller group and you have one contract with one site of service and the group is very profitable and has a couple older physicians who are interested in potentially getting liquid on their business and they don’t want to deal with the operations anymore.

Justin: 26:46 – – And this is the, the seat you find yourself in, you’re probably at a higher risk to experiencing a potentially adverse event where a buyout happens and the outcome of something that you’re not gonna like your risk is further augmented. If you have high fixed expenses, you have very little in savings and you, you have a lifestyle that’s pretty leveraged meaning you just, you have a lot of debt and you’re trying to pay it all down, but you need every penny that you make every month no matter what. And there’s no emergency fund there. You’re in a much more stressful position when when it comes to the micro risks, then somebody who would, you know have either be in a different type of practice model or it may be in an academic center or who has the personal buffer. Maybe they’ve got a hundred K sitting in cash and it’s their sleep well at night money and they know that if they lost their job, they could start doing locums tomorrow and continue to be able to fund very comfortably their low fixed cost lifestyle.

Justin: 27:43 – – So we’re actually gonna talk next week, a little teaser with a physician who’s done a really great job of navigating this. Someone who is very diligently built a low fixed cost lifestyle and hasn’t given up on quality of life, hasn’t traded much off in that way but, but does have a pretty stress free life and is able to do locums work and travel and have a lot more flexibility in employment because of the financial decisions that they’ve made. So look forward to that next week or I guess two weeks from now. Also looking forward to hopefully meeting some of our listeners and friends at ASA coming up in October, the 2019 ASA meeting. If you’re going to be there, drop me a line by email. We’re going to have a happy hour on Sunday. We’d love to get you additional information for that. That’s all I’ve got for today.

Justin: 28:28 – – So drop me a line and let me know what you think of this episode. I’m, I’m hopeful that this is going to give you further context for how to think about your career, how to think about different practice models, how to think about the risks associated with certain types of practice models versus others and the security that you should expect or should not expect with your job as an anesthesiologist. Because the fact is you’re going to be in demand for a very long time with their skillset. It’s deeply valuable. We need more and more of them and we just can’t make that many. However, no one is immune to these micro risks. They’re all around, and depending on your situation, you may have more of them than some of your peers. So it’s a great thing to be aware of. So thanks for joining us, everybody this week on episode 27 of the anesthesia success podcast. Yes.