Commercial and Medicare Advantage Payment for Anesthesiology Services

ABSTRACT

Objectives: Anesthesiology services are a focal point of policy making to address surprise medical billing. However, allowed amounts and charges for anesthesiology services have been understudied due to the specialty’s unique conversion factor (CF) unit of payment and complex provider structures involving anesthesiologists and certified registered nurse anesthetists (CRNAs). This study compares payments for common outpatient anesthesiology services by commercial health plans, Medicare Advantage (MA), and traditional Medicare.

Study Design: Analysis of 2016-2017 claims from Health Care Cost Institute.

Methods: We derived allowed amount and charge CFs for commercial and MA claims using the base units assigned to each procedure code, time units, and modifiers. We computed the ratio of the allowed amount and charge CFs relative to the traditional Medicare CF. We described these payment measures by provider structure and network status.

Results: Mean in-network commercial allowed amount CFs for anesthesiology services ($70) are 314% of the traditional Medicare rate ($22), whereas mean commercial charge CFs ($148) are 659% of the Medicare rate. Commercial payments vary widely and are higher to anesthesiologists than to CRNAs and higher out of network than in network. MA plan payments align with traditional Medicare with payment parity between anesthesiologists and CRNAs, both in network and out of network.

Conclusions: Common payment measures for anesthesia services—commercial allowed amounts, charges, or traditional Medicare—are highly divergent. MA plans’ relatively low payments likely reflect the cost-containing influence of competition with traditional Medicare and MA’s prohibition on balance billing. Out-of-network benchmarks for anesthesia services, such as the “qualifying payment amount” used in the No Surprises Act as a guidepost for arbitrators, may benefit from considering commercial payment differences across independent anesthesiologist, independent CRNA, or anesthesiologist-CRNA dyad provider structures.

Am J Manag Care. 2021;27(6):e195-e200. https://doi.org/10.37765/ajmc.2021.88668

Takeaway Points

This study of 2016-2017 administrative claims compares payments for common outpatient anesthesiology services by commercial health plans, Medicare Advantage (MA), and traditional Medicare.

• Mean in-network commercial allowed amounts ($70) and charges ($148) per anesthesia conversion factor are 314% and 659% of the traditional Medicare rate ($22).
• Commercial allowed amounts are higher for anesthesiologists than for certified registered nurse anesthetists (CRNAs) and higher out of network than in network.
• MA plans pay on par with traditional Medicare for anesthesiologists and CRNAs, both in network and out of network, likely reflecting the cost-containing influence of competition with traditional Medicare and MA’s prohibition on balance billing.

Anesthesiology service providers are a common source of surprise out-of-network bills.^1-4 Although there is widespread agreement that these surprise bills are unfair to patients, consensus around what is a reasonable payment standard for out-of-network services is lacking. The new federal surprise billing law, the No Surprises Act, addresses this question by creating an arbitration process to adjudicate disputes over out-of-network payment, with guidance to consider an issuer’s median in-network allowed amount among other (less concrete) factors.⁵ Therefore, current in-network allowed amounts are important for regulators, stakeholders, and researchers to understand. However, systematic data on the magnitude of commercial payments for anesthesia are limited due to the unique and complex attributes of payment and service provision in this specialty. Using a multipayer claims database, we find that mean in-network commercial allowed amount conversion factors (CFs) for anethesiology services ($70) are 314% of the traditional Medicare rate, and mean charge CFs among commercial claims ($148) are 659% of the traditional Medicare rate (Figure 1). Unlike traditional Medicare—which uses the same CF regardless of whether the service is provided by an anesthesiologist or a certified registered nurse anesthetist (CRNA)—we find that private insurer payments tend to vary across provider delivery structures for commercial but not Medicare Advantage (MA) enrollees (Figure 2).

STUDY DATA AND METHODS

We analyzed 2016 and 2017 commercial and MA claims data from the Health Care Cost Institute (HCCI), comprising claims from 61 million commercial and 8.9 million MA covered lives in 3 of the 5 largest US insurers: UnitedHealthcare, Aetna, and Humana.⁶ Our analytic sample includes claims for the 10 most common professional anesthesiology services among commercial payers in outpatient hospital and ambulatory surgery center (ASC) settings. We excluded claims with anomalies that affect payment rates in ways that we could not reasonably address (detailed exclusion criteria in eAppendix 1 [eAppendices available at ajmc.com]).

Traditional Medicare reimbursement for anesthesia is not determined by the typical physician fee schedule based on relative value units. Rather, payments for anesthesia are calculated using base (start-up) units that are assigned according to the complexity of different procedures and time units accounting for procedure length.^7,8 Traditional Medicare converts these units to an allowed amount based on a CF that is set annually. For example, anesthesia for an eye lens surgery (procedure code 00142) is assigned 4 base units. If an anesthesia provider spends 30 minutes performing this service on a Medicare beneficiary, then that provider would be reimbursed for the 4 base units plus the two 15-minute time units. These 6 units would be multiplied by the traditional Medicare allowed amount CF, which was approximately $22 in the years 2016 and 2017, with modest variation between years and across geographic areas. The total allowed amount reimbursed to the provider would, therefore, be approximately $132. Commercial payers also tend to negotiate anesthesia reimbursement at the CF level, and this unique billing structure adds complexity to claims-based analyses comparing commercial reimbursement for anesthesia with traditional Medicare rates.

Some anesthesiology services are provided by physicians, whereas others are provided by CRNAs, either with or without medical direction by a physician. When a physician supervises the CRNA (ie, a supervisory dyad), the anesthesiologist supervisor and CRNA supervisee each receive half of what they would be paid if they independently provided the service, and anesthesiologists can medically direct several services simultaneously.⁷ Additional units are also added to base and time units if a patient is less healthy.⁷ Therefore, a simple comparison of total allowed amounts across commercial and MA plans would not be an accurate measure of differences in negotiated rates due to confounding differences in provider structures, procedure times, and patients’ underlying health status.

To address this complexity, we derived allowed amount CFs and billed charge CFs for commercial and MA claims using the base units assigned to each procedure code, time units, and modifiers indicating provider type (detailed methods in eAppendix 2).⁷ For each claim, we also computed the ratio of the allowed amount CF and charge CF relative to the traditional Medicare allowed amount CF, which averaged $22.31, accounting for year and geographic variation. We also calculated the 20th percentile, median, and 80th percentile of the distribution of allowed amount CFs and charge CFs among commercial and MA plans in dollars and as ratios to traditional Medicare CFs.

We stratified our analyses by provider type because, whereas traditional Medicare uses the same CF regardless of provider type, that is not necessarily the case among commercial and MA payers (detailed methods in eAppendix 3). To facilitate comparison, for anesthesiologist-CRNA supervisory dyads we report full allowed amount CFs separately for the supervising anesthesiologist and CRNA supervisee, although we note that in practice these amounts are generally halved by commercial and MA plans as well. We could not derive the charge CF for these dyads because of inconsistency in whether the magnitudes of reported charges are halved. We also categorized services by provider network status according to claim-level indicators in the HCCI data.

We excluded inpatient anesthesia services because unreliable or inconsistent reporting of time units on the majority of inpatient claims in our data set prohibited us from accurately deriving allowed amount CFs and charge CFs. We also excluded claims with modifiers for unhealthy patients due to potential inconsistency in whether additional units for a patient’s health were incorporated into the reported units on the claims. All dollar values presented reflect nominal 2016 and 2017 US$.

RESULTS

Our analytic sample included 3.59 million commercial claims and 1.87 million MA claims for the 10 most common professional anesthesiology services in outpatient hospital and ASC settings in 2016-2017 HCCI data. These 10 services represent 62% of anesthesiology services in these settings.

Provider Structure and Network Status

Among commercial claims, independent anesthesiologists provided the highest volume of procedures (43.5% of procedures), followed by independent CRNAs (38.2%) and anesthesiologist-CRNA supervisory dyads (18.2%). Among MA claims, independent CRNAs were the most common (48.2%), followed by independent anesthesiologists (27.5%) and anesthesiologist-CRNA supervisory dyads (24.3%) (Figure 3).

Out-of-network anesthesiology services were much more common among MA (41.2%) than commercial (8.3%) patients, but similar across provider structures within plan type (eAppendix Exhibit 4.1).

Mean Commercial and MA Allowed Amounts

Although the overall mean commercial in-network allowed amount CF for anesthesia services in our sample for all provider types was $70 (314% of traditional Medicare), we found that the commercial in-network allowed amount CF varied across provider structures, averaging $82 for independent anesthesiologists and $57 for independent CRNAs (Figure 2). Commercial allowed amount CFs for supervisory dyads averaged $65 and $60 for supervising anesthesiologists and CRNA supervisees, respectively (Figure 2). Because the traditional Medicare rate is flat across these different provider structures, these mean commercial allowed amount CFs ranged from 259% to 360% of traditional Medicare rates for independent CRNAs and independent anesthesiologists, respectively (Figure 4). In contrast, for MA patients, mean in-network allowed amount CFs were relatively consistent across all provider structures ($20-$21) (Figure 2).

Within each provider structure, commercial out-of-network allowed amount CFs were higher than in-network allowed amount CFs (Figure 2). Commercial allowed amount CFs paid to out-of-network providers were highest to anesthesiologist-CRNA supervisory dyads ($101 and $100 for supervising anesthesiologists and CRNA supervisees, respectively, compared with $93 and $78 for independent anesthesiologists and CRNAs, respectively). In contrast, mean MA allowed amount CFs were relatively consistent across in- and out-of-network providers for all provider structures.

Distributions of Allowed Amounts and Charges

There is much greater variation in the allowed amount CF paid by commercial plans than MA plans (Figure 5). The 20th to 80th percentile range for commercial payments is $57 to $106 (255%-469% of traditional Medicare) for anesthesiologists and $39 to $76 (178%-349% of traditional Medicare) for CRNAs (data shown in eAppendix 5). However, the 20th to 80th percentile range of MA allowed amount CF is $16 to $23 (72%-100% of traditional Medicare) for anesthesiologists and $17 to $22 (80%-100% of traditional Medicare) for CRNAs. Notably, the allowed amount CF distributions are nearly equivalent between anesthesiologists and CRNAs for MA plan payments.

Median commercial charge CFs are much higher than allowed amount CFs at $149 and $108 for anesthesiologists and CRNAs, respectively. The 20th to 80th percentile range of commercial charge CFs is skewed higher for independently performed anesthesiologist services ($104-$231; 466%-1009% of traditional Medicare) than CRNA services ($73-$169; 330%-772% of traditional Medicare).

DISCUSSION

Anesthesiology’s unique CF payment methodology and provider delivery structure make it difficult to reliably compare claim-level charges and allowed amounts across payers and populations. This complicates regulatory efforts to benchmark service prices or set out-of-network payment limits for anesthesiology services when addressing surprise billing (whether through a simple benchmark or arbitration). Whereas prior studies of administrative claims analyzed total allowed amounts³ and charges⁹ for anesthesia services, ours is the first (to our knowledge) to derive and compare anesthesia payments per CF to inform policies addressing surprise billing for anesthesiology services and the arbitrators adjudicating out of network payment disputes under the new No Surprises Act. We found that commercial plans pay a mean allowed amount CF of $70 for anesthesia services across all provider types and structures combined, which is 314% of the traditional Medicare rate. Our observed commercial markups over Medicare for anesthesia services are on par with the markups estimated by prior studies of payment to anesthesiologists³ and other hospital-based physician specialties that commonly surprise bill, such as radiology, pathology, and emergency medicine.^10-12 For example, in an analysis of 2016 commercial claims from multiple insurers, Song observed average in-network commercial payments for procedures commonly performed by radiologists (chest x-ray Current Procedural Terminology [CPT] 71020), pathologists (examination CPT 88305), and emergency medicine physicians (visit CPT 99285) to be 260%, 360%, and 250% of Medicare, respectively.¹⁰ These markups are much higher than those of other specialties, as an analysis of 2017 HCCI commercial claims estimated that professional allowed amounts averaged 122% of Medicare allowed amounts across all specialties nationally.¹¹

Additionally, we found that anesthesia providers’ mean charge CFs ($148) are more than double the mean commercial in-network allowed amount CF and 659% of the traditional Medicare allowed amount CF. A prior study of the ratio of charges to Medicare allowed amounts across specialties estimated that mean charges among specialties that do not typically surprise bill patients are 260% of Medicare allowed amounts, whereas charges relative to Medicare rates are much higher among diagnostic radiology (400%), pathology (350%), emergency medicine (540%), and anesthesiology (670%).¹³ This finding suggests that the ratio of charges relative to Medicare rates is much higher for anesthesia services than for other specialties, even in comparison with the other specialties that are often associated with surprise billing.

We observed that out-of-network allowed amounts are higher than in-network allowed amounts for commercial plans, suggesting one reason why providers might not be strongly incentivized to come in-network. This trend is not unique to anesthesia, as a prior study showed commercial payments to be higher out of network than in network for professional services across several specialties, including orthopedics, cardiology, gastroenterology, radiology, and pathology.¹⁴ Many specialties performing elective services rely on network participation for higher patient volume and are therefore willing to accept lower in-network payments from health plans in exchange for a higher volume of the health plan’s enrollees. However, ancillary specialists such as anesthesiologists are less dependent on network status for patient volume because they are not typically preselected by patients. Therefore, anesthesiologists may be less inclined to move in network when they would face lower allowed amounts upon contracting with health plans. This may be a driving factor of the trend reported in prior studies that anesthesiologists are more commonly out of network than other specialties.^4,12

Due to wide variation in payment measures, policy makers addressing surprise billing should choose out-of-network payment benchmarks prudently. For example, based on our analyses, an out-of-network payment benchmark for anesthesiologists practicing independently set at the median ($79) or mean ($82) commercial allowed amount per CF would be approximately 350% or 360%, respectively, of the traditional Medicare rate ($22) (Figures 2 and 4 and eAppendix 5). Benchmarks of the median ($149) and 80th percentile ($231) of anesthesiologists’ commercial charges CF would be approximately 652% and 1009% of the traditional Medicare rate, respectively (Figure 5 and eAppendix 5). Thus, both the source—commercial allowed amounts, charges, or traditional Medicare—and the distributional point employed in out-of-network payment benchmarking will substantially influence the magnitude of payments to anesthesiology providers. Further, our findings suggest that out-of-network benchmarks for anesthesia services, such as the “qualifying payment amount” (in general, an issuer’s median in-network rate locally) used in the No Surprises Act as a guidepost for arbitrators, may benefit from taking into account commercial payment differences across independent anesthesiologist, independent CRNA, or anesthesiologist-CRNA dyad provider structures.

We also found that MA plans track CMS’ payment level per CF for anesthesia services, consistent with prior studies of hospitals and other professional specialties that found MA provider payment levels often follow traditional Medicare rates.^14-16 This payment parity exists for in-network and out-of-network services despite the high prevalence of out-of-network anesthesia services in MA (41.2%) (eAppendix Exhibit 4.1). This suggests that the threat of remaining out of network has little effect on in-network prices paid to anesthesia providers by MA plans, in contrast to what evidence suggests to be the case in the commercial market.³ This is likely driven by a combination of 2 factors. First, providers participating in Medicare are prohibited from collecting more than the traditional Medicare allowed amount for out-of-network services provided to MA enrollees, and most professionals participate in Medicare.^8,17 Nonparticipating providers are also prohibited from collecting more than 109.25% of the traditional Medicare allowed amount for out-of-network services provided to MA enrollees.⁸ This strictly limits total out-of-network reimbursement to providers and patients’ liability for balance bills in MA plans. Second, MA plans compete with traditional Medicare for enrollees and therefore need to keep costs sufficiently low to maintain affordable premiums and be actuarially viable.¹⁶ This cap on total reimbursement regardless of network status and the limited liability for patients receiving out-of-network services reduces the incentive to contract on the part of both providers and health plans.

Inclusion of advanced practice nursing specialists (eg, nurse practitioners) has been shown to reduce costs in some settings by increasing labor supply and competition, and more directly by augmenting or substituting for physician services at a lower cost.^18,19 Such savings are realized in the commercial market for anesthesia services, where we observed that plans paid lower allowed amounts CF to CRNAs than to anesthesiologists. However, traditional Medicare does not vary pricing per CF across anesthesiologists, CRNAs, and supervisory dyad provider structures, and we found that MA plans share this payment parity across provider types. More work is needed on the benefits of CRNAs practicing independently and under the supervision of anesthesiologists, but our study suggests that expanding the inclusion of CRNAs in anesthesia services may yield direct cost savings for commercial plans. There may also be indirect effects of CRNA practice on reducing costs not captured in our analysis, such as increased labor supply and competition.

Limitations

Limiting our analysis to a subset of procedures in the outpatient and ASC settings and applying other exclusions strengthened the accuracy of CF estimates within our sample but may reduce generalizability. Findings may not be generalizable to health plans beyond our sample.

CONCLUSIONS

Anesthesia CF commercial allowed amounts, traditional Medicare rates, and charges differ substantially in magnitude. MA plans’ relatively low payments likely reflect the cost-containing influence of competition with traditional Medicare and MA’s prohibition on balance billing.Policy makers addressing surprise billing for commercial enrollees should choose out-of-network payment benchmarks prudently to avoid inflationary out-of-network benchmarks. Additionally, out-of-network benchmarks for anesthesia services, such as the “qualifying payment amount” used in the No Surprises Act as a guidepost for arbitrators, may benefit from considering commercial payment differences across independent anesthesiologist, independent CRNA, or anesthesiologist-CRNA dyad provider structures.

Acknowledgments

The authors acknowledge the assistance of the Health Care Cost Institute and its data contributors, Aetna, Humana, and UnitedHealthcare, in providing the claims data analyzed in this study.

Author Affiliations: Leonard D. Schaeffer Center for Health Policy and Economics at University of Southern California (ELD, BL, ET), Los Angeles, CA; USC-Brookings Schaeffer Initiative for Health Policy (ELD, LA, ET), Los Angeles, CA; Brookings Institution (LA, ET), Washington, DC.

Source of Funding: Arnold Ventures supported this work through a grant to University of Southern California and the Brookings Institution.

Author Disclosures: Dr Trish is a consultant to Cedars-Sinai Health System and for a capital management firm, both outside the specific issue of this paper; has performed expert witness work for the Blue Cross Blue Shield Association, Premera, and Varian Medical Systems, outside the specific issue of this paper; and has received speaking fees from MultiPlan. The remaining authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (ELD, BL, LA, ET); acquisition of data (LA, ET); analysis and interpretation of data (ELD, BL, LA, ET); drafting of the manuscript (ELD, BL); critical revision of the manuscript for important intellectual content (ELD, LA, ET); statistical analysis (BL); obtaining funding (LA, ET); and supervision (ET).

Address Correspondence to: Erin L. Duffy, PhD, MPH, University of Southern California, 635 Downey Way, Los Angeles, CA 90089-3333. Email: Erin.Duffy@usc.edu.

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