Cornell University: Anesthesia costs rise with corporate outsourcing

Anesthesiology prices jump significantly after medical facilities contract with corporate physician management companies – especially those backed by private equity firms – and threaten to hike patient costs, according to new research by Weill Cornell Medicine and Columbia University Mailman School of Public Health investigators.

The paper, published Feb. 28 in JAMA Internal Medicine, highlights the growing trend of hospital outpatient departments and ambulatory surgery centers outsourcing anesthesiology management to profit-driven companies – “physician management companies (PMCs)” – that employ anesthesiologists, said senior author Dr. Lawrence Casalino, the Livingston Farrand Professor of Public Health in the Department of Population Health Science at Weill Cornell Medicine.

“Raising prices can hurt patients because if health insurers pay more, patients pay more in premiums and in co-pays,” Casalino said. “There’s a very strong profit incentive for these corporations to make a lot of money quickly, particularly for private equity firms, which aim for 20% annual returns for investors. And the higher prices don’t necessarily benefit physicians – the extent, if any, to which physician management companies share the revenue from increased prices with physicians is not known.”

Anesthesiology – an industry valued at more than $26 billion annually – ranks highly among specialties in which PMCs employ physicians, Casalino said. Health care facilities can either opt to employ anesthesia practitioners themselves or outsource to a PMC or independent anesthesia group.

“Physician management companies, many of which are backed by PE firms, have grown increasingly common in anesthesia. These companies manage the back-end administration of medical practices, including insurance contracting and billing, and also provide staffing and management services to health care facilities,” said lead author Ambar La Forgia, assistant professor of health policy and management at Columbia University Mailman School of Public Health. “The aim of our research was to study changes in prices paid to anesthesiologists and certified registered nurse anesthetists after a facility contracted with a PMC.”

Casalino, La Forgia and others built an intricate dataset to compare changes in prices before and after a facility contracted with a PMC to facilities that did not. The database included 7.2 million commercial insurance claims for anesthesia services provided for same-day procedures among 2.25 million privately insured patients in more than 6,700 facilities across the United States between 2012 and 2017. The researchers also analyzed whether anesthesiologists in these facilities dropped out of health insurer networks during this time, which would make it possible for them to “surprise bill” patients.

Casalino said he wasn’t surprised to find that insurance “allowed amounts” –the prices that health insurers and patients together pay for anesthesia services – rose by 16.5% after same-day surgical facilities contracted a PMC. Larger increases (26%) were noted when a PMC had received private equity investment. But “just because there’s a 16% to 26% price increase negotiated by the PMC doesn’t mean this extra fee goes to anesthesiologists,” he said.

The researchers found no evidence that physician management companies moved anesthesia practitioners out of network, but it is possible that the threat of moving them enabled the companies to negotiate the large percentage price increases.

“Conceptually, this is what you’d expect to see – that PMCs and private equity firms seek to raise prices and find ways to do it,” Casalino said. “I should say, however, that the jury is still out. Proponents claim that PMCs can bring management expertise, capital and probably a better ability to comply with regulations on quality and safety. The effect on the quality of care is not clear.”

If PMCs continue to gain market share in various geographic regions, anesthesia costs could rise even higher, Casalino said. Future research also needs to determine whether PMCs – whose behind-the-scenes operations are not transparent – enhance or detract from patients’ care quality or outcomes.

“Many states have corporate-practice-of-medicine laws that theoretically ban nonphysician corporations from employing physicians, but these laws are easily circumvented,” he said. “It may be time to reevaluate and either eliminate or strengthen them.”