Anesthesia Subsidies: A Brief History
Eric Callan
Posted On March 25, 2015 By Eric Callan

DISCLAIMER: The information provided in this article is intended to provide general guidance on matters of interest only. The application of the information provided below may vary widely based on the specific facts involved in each situation. Considering the changing nature of laws, rules and regulations there may be exceptions or faultiness contained in this article. As such, LifeLinc Anesthesia is providing this information in the understanding that the authors and publishers are not rendering legal or other professional counsel. Seek legal advice regarding your specific anesthesia arrangement as failure to do so can have very serious criminal and civil penalties.

The Path Paved For Anesthesia Subsidies

Today, over 75% of hospitals pay their anesthesiology departments a subsidy.

With the dawn of Medicare’s resource-based relative value units system in the late 80s, anesthesia reimbursement faced a reduction of 40%. This cut wasn’t felt keenly at first, as the majority of providers were working at hospitals and were well-compensated. Only a small percentage of those they served were Medicare patients. With the rise in both Medicare patients and private payors who reimbursed even less per unit than Medicare patients, anesthesia groups began to flounder financially. While this was happening, surgery centers were rising in popularity, taking some of the better-paying cases from the hospitals. As a result, hospital-based anesthesia groups were left with a devastating reality: a blend of poor payors and less customers than they’d started with.

To make up for the decline in reimbursement, anesthesia groups took on less employees and the workload increased for their providers. With less anesthesia providers being hired, this led to a shortage in job offerings in the anesthesia market, which in turn brought on a lower amount of graduating residents. The amount of Ambulatory Surgery Centers (ASCs) had grown aggressively, offering anesthesia providers a smaller workload and higher compensation thereby wooing them away from their hospital jobs. In order to retain the anesthesia providers, hospitals were forced to provide higher compensation.

The Birth of Anesthesia Subsidies

In order to atone for the decline in reimbursement and the increase in workload, anesthesia providers needed to find a way to fill the deficit. Providers were being forced to cover more cases and increase their costs with no way to make up the balance. Around the year 2000, anesthesiology departments began requesting subsidies from their hosting hospitals. Hospitals were forced to pay for the coverage because, in refusing, they would be leaving operating rooms potentially uncovered. Over next decade, the percentage of hospitals paying anesthesia subsides would skyrocket from 15% to their current level at 75%. The average subsidy paid to an anesthesia group practice would grow to it’s current level of 1.5 million dollars annually.

The Future of Anesthesia Subsidies

ASCs continue to beckon anesthesia providers with their predictable workday times and weekends off. Because ASCs have less trouble attracting providers with more cases and more structured hours, the required subsidy is rarely necessary for them. As the population continues to age, the amount of those accessing health care through Medicare will increase, bringing with them lower reimbursements. Hospitals are beginning to re-strategize the payment of their subsidies, often looking to their ASCs to kick in their share of the costs.

What This Means For Your Hospital

If your hospital has not yet been asked to subsidize your anesthesia department, it’s best to be prepared because those conversations may be coming soon. If you are currently paying a subsidy, then you should understand the exact drivers contributing to your expense. Understanding the costs associated with your specific situation can help you efficiently navigate contract negotiations with your anesthesia group. It can also assist you in selecting a provider who will work with you to minimize or even eliminate the need for a subsidy.