Let’s talk about something nobody taught us in school: the financial contract that exists between your anesthesia group and the hospital. It’s one of the most important and invisible factors shaping your life, your pay, and even whether your group survives another year or gets taken over by someone else. Let’s break down what it’s all about straight from the horse’s mouth: This is written directly from a meeting transcript from a conversation I had with an executive of a national anesthesia group who breaks down how it works for us.
There are two dominant ways anesthesia groups contract with hospitals. And how your group gets paid changes everything including how much they can offer you, how easy or hard your day-to day work life is, the way your schedule is built, their chosen practice model, and how they react to what other Groups in the same area are doing.
Here’s what that senior executive told us.
1. What are the two models?
“Cost plus simply means… we will bill you (the hospital) every month the cost to staff plus our management fee for the program.”
“What you do in the second situation is you go in and you analyze their case volume, come up with your staffing model, figure out how much you want to pay everybody and finance goes into the really complicated spreadsheets and come up with a monthly or annual cost for the entire program. That’s usually a percentage of that cost and a fixed percentage model”
When the model is cost-plus, the hospital pays for the actual labor – what the group pays CRNAs, plus a management fee. The executive clarified that in this model, “the management fee is a set amount per month not a percentage ” which means the group’s profit is more stable. In a percentage-based contract, the hospital expects to pay a certain budgeted amount each year, and the group is responsible for staying within budget by running the most efficient model possible. As the executive explained, “we come in we run the numbers and we tell you this is how much it’s going to cost to run this program and for the privilege of us running this program because we’re going to do it really well, better than other guys and we’re going to charge you.”
If labor costs go up, the group loses margin. If efficiency goes down, the group loses margin.
2. How does each model influence staffing motives?
Staffing is planned around minimizing risk to the Group. Groups have to carefully balance permanent hires (with their fixed salaries) against the flexibility (and potential cost spikes) of PRN or locum tenens CRNAs. The executive highlighted this financial pressure: “If you exceed that bucket of premium labor expense… that eats into the group’s margin.” Cost-plus allows more freedom (in theory) because the hospital is covering the labor costs. However, even in cost-plus models, there’s pressure to control costs, as the executive pointed out: “the hospital CFO is still saying, ‘You told me it was going to cost a million. It’s coming in at two. Get this under control.’”
This shared goal of efficiency between the Group and the hospital incentivizes lean staffing in both scenarios.
3. When staffing gets tough, who feels the pain?
It depends.
When a group starts a new program across town there is intense pressure to retain staff and fill gaps. They may pay CRNAs more than their competitor groups and shift the market such that CRNAs leave their previous jobs to come join the new program for higher pay. In the cost-plus model, the burden is on the group to manage cost, but the actual burden of the cost is on the hospital -the group is still held accountable for cost overruns, even if the hospital is paying the bulk of the labor. In the second model, where the group technically has to eat any labor cost above what they have promised…well, as the executive bluntly put it, “You run a more efficient model – or you run out of margin.
4. What happens when CRNA pay spikes?
“They were paying everybody $300 an hour… and then the hospital pulled the plug and dismembered the whole anesthesia team. “It was less painful for them to go down to only a few case types and rebuild the whole program.”
This is a real-life example the executive is bringing up. Explaining that one group raised rates to stay staffed and their entire program collapsed. He knows because his group absorbed some of the CRNAs that were displaced.
If the group was cost-plus? The hospital got sticker shock.
If fixed-fee? The group lost its margin — and likely its contract.
5. What happens when a group needs more money?
I asked: “So then is that the situation where you go back to the hospital and say: ‘Hey, we need more money?’”
“It really depends… are we in that situation because we did something wrong?”
If a market shift makes staffing more expensive (e.g., increased CRNA demand), groups will sometimes ask for help. But most try to fix it internally until a contract renewal comes up.
“We might try to fix things internally and just take it on the chin for a while.”
As the executive explained, groups may “delay that conversation and try to see how we can just fix it internally.” Only after they’ve gathered data and built a compelling case will they make the ask.“Nine times out of ten… when you paint the picture properly, the hospital is like, ‘Yeah. That sucks for all of us.’”
6. What happens when the group fails?
“Eventually, the hospital says: ‘This isn’t sustainable.’ Terminate.”
When labor costs break the model, hospitals cancel contracts and entire teams get disrupted.
7. How does facility location affect which model gets used?
“If it’s a rural setting, I’d be a betting man … it’s usually going to be cost plus.”
That’s because rural hospitals can’t always attract providers or take on labor risk. But for large, high-status hospitals, a group might run on smaller margins to help them get more contracts and grow: “You’re willing to take that risk… even potentially just run at a smaller margin than normal… because it helps you with your business development.”
Cost-plus buys stability. Fixed fee buys prestige and growth if the group can make it work.
8. So why does this shape permanent vs. temp CRNA hiring?
“How do you meet CRNAs where they are… without turning that into long-term inflation?”
When CRNAs want higher pay, groups think: Do we hire you full-time and change our whole model? Or do we bring you on PRN and hope the market resets? Do we do what we can to wait the market out?
Sometimes the group has to try to convince the hospital “It’s supply and demand. That’s what they’re worth now.” But that usually requires a lot of data. And theres’ a whole other layer to how readily available (and accurate) the data out there is.
🔗 Up Next: How hospitals benchmark CRNA salaries and think about CRNA raises
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