Whose Practice Will Be For Sale Next?

  • Sibert, Karen, MD, FASA
| Dec 02, 2013

You may have heard the recent news that Sheridan Healthcare Inc., a physician services company based in Florida, has acquired one of the largest private anesthesiology group practices in California, the Medical Anesthesia Consultants Medical Group Inc. (MAC) of San Ramon. The deal, which closed November 14, is Sheridan’s first in California, and “provides a platform that will accelerate our expansion in the California marketplace,” said John Carlyle, Sheridan’s CEO.

By all measures, MAC is a well-respected and successful anesthesia group, whose more than 100 physicians—shareholders, non-shareholder employees, and independent contractors—provide anesthesiology services to five hospitals and 23 ambulatory surgery settings in northern California. So why would the shareholders want to sell?

Was this a hostile takeover, or did hospital administrators in some way force the group’s hand? Not at all, says Dr. Jeffrey Poage, one of the partners and shareholders in MAC, and CSA Vice-Chair of the Legislative and Practice Affairs Division. He said the shareholders in MAC actively sought a buyer, hired an investment bank (Jefferies LLC) to broker the deal, and voted unanimously to approve it. The group’s motivation was “in line with being part of a larger entity with a clear long-term strategy for growth and being better prepared for changes in the healthcare marketplace,” said Dr. Poage. He noted that there are no plans to hire nurse anesthetists or change the MD-only composition of the group.

It's doubtful that the non-shareholders in anesthesia practices undergoing buyouts or mergers are quite as enthusiastic as the shareholder partners. While the financial terms of the MAC deal have not been made public, anesthesia practice buyouts typically feature a substantial payout in cash (and sometimes corporate stock) to partners. Non-partners—typically younger and newer to the group—receive much smaller, if any, buyout packages. Everyone who chooses to stay with the group signs a new employment contract that is likely to include salary cuts or a lower unit value for future compensation.

Dr. David Fitzgerald is the president of MAC and oversaw the acquisition process during the past year. Ladd McDonald, the former CEO of the group, became Sheridan's vice president of anesthesia operations for the western region. The group considered offers from several healthcare corporations before finalizing the sale with Sheridan, whose more than 1800 anesthesia practitioners in 175 programs deliver more than 900,000 anesthetics per year. A national multi-specialty physician services company, Sheridan conducts business in 25 states and provides professional staffing in other specialties including radiology, emergency medicine, and pediatrics.

Nationally, anesthesia practices are selling to corporate buyers at an unprecedented pace, as physicians fear that the Affordable Care Act (ACA) will bring sharply reduced compensation. The Wall Street Journal (WSJ) reported on November 21 that Blue Shield of California has sent contract amendments to many physicians, asking them to accept fees up to 30% lower for insurance exchange patients than the usual commercial rates. In New York, the WSJ said, UnitedHealth Group Inc. has set rates for plans in the new health-law marketplaces close to what the state Medicaid program pays for the same services, and less than half of what physicians receive for treating people covered by employer-sponsored insurance.

Signing on with a corporate buyer has the potential to bring several years of relative security for the anesthesia practice, depending on the terms of the employment agreement. The sellers hope that corporations will be able to negotiate better contracts than physician groups can when they act alone. Groups may become part of single-specialty corporations such as Somnia Anesthesia Services or North American Partners in Anesthesia (NAPA), or they may be acquired by multi-specialty corporations such as Sheridan, TeamHealth Holdings Inc. or Mednax Inc.

Merger is another possibility for anesthesia practices. In May 2013, a new anesthesiology corporation, Resolute Anesthesia and Pain Solutions LLC, was formed by the merger of Broad Anesthesia Associates and Mid-Florida Anesthesia Associates in a recapitalization led by the Goldman Sachs Private Capital Investing Group. Resolute currently serves over 25 locations in Florida, Missouri, and Illinois, according to a company press release, and "expects to grow by partnering with leading quality anesthesia groups nationally."

Dr. Stan Stead, the ASA's newly elected Vice President for Professional Affairs, notes that for the physician who is interested in selling a practice, "two key questions need to be answered: To whom am I selling, and what are my motivations?" Dr. Stead told the ASA's annual practice management meeting earlier this year that possible motivations for selling are "to leave anesthesiology, leave a location, or to become an employee." Once the motivation is clear, he said, the next step is to analyze the value of the practice, looking at the income, the market value, and the cost of running the practice.

Since anesthesia practices have few tangible assets, Dr. Stead said, what the purchaser really wants to buy is the right to future revenue. "The purchase of a practice transfers the financial risk from the physician owners to the new owners. Selling shareholders can expect a salary offer less than what they currently enjoy," he explained.

To make sure there is continuity, Dr. Stead said, often the employment contract stipulates that at least some of the physicians must remain with the group for two to five years. "Sellers can expect to have a new set of benefits, time off, call and responsibilities. Purchasers may require participation in a variety of programs designed to reduce practice cost, increase market share, and increase practice revenue. There is considerable risk that these requirements may not be palatable," he warned.

Only time will tell whether or not the physicians of MAC are happy with their decision to sell the practice, and how many of the non-shareholders may decide to seek work with a different group where partnership is still an option. For now, though, it's a safe bet that MAC won't be the only California anesthesia practice to look for a good deal while one may still be available. Which group will be next?

Karen Sibert MD, Jeffrey Poage MD, and Stan Stead MD MBA contributed to this report.

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