In his 1776 treatise “The Wealth of Nations,” Scottish philosopher and economist Adam Smith elucidated theories on equilibrium in capital markets with special reference to the forces of supply and demand of goods and services. This balance—theoretically vital for the betterment of society in a capitalistic economic model—has revealed itself some two-and-a-half centuries later when we discuss subsidies provided by hospitals to anesthesia groups. So important are these funds that an estimated 85% of hospitals now offer them. They are necessary to retain the services of highly trained anesthesia providers in the ever-changing economic, social and even political environments that encompass the delivery of anesthesia care today. Yet many in the anesthesia world fail to understand both the essential elements and significance of these subsidies. Later in this article, I will give you a sense of the magnitude of the subsidies we are discussing, but for now, let’s dig deeper into the backstory of anesthesia subsidies.

I had the opportunity recently to discuss this subject of anesthesia subsidies with Howard Greenfield, MD, an anesthesiologist and the founder of Enhance Healthcare Consulting, a private consultancy company. Dealing with the business side of anesthesia delivery, Greenfield offered his comments on anesthesia subsidies and their impact.

What exactly is a subsidy with regard to medical practice in general, and anesthesia specifically?

Anesthesia subsidies are supplemental funds paid by hospitals to anesthesia groups to cover the required anesthesia locations and hours of service requested by the hospital. Many anesthesia service lines now require 24/7 in-house coverage, often with minimal anesthesia revenue. Trauma, neurointerventional radiology and obstetrics yield comparatively low anesthesia revenue for the in-house anesthesia groups. The constantly eroding payor rates from both the Centers for Medicare & Medicaid Services (CMS) and commercial payors have left almost all anesthesia groups with diminishing revenue streams at a time of increasing demand.

Where do the subsidies come from?

The source of subsidy funding comes from the hospital itself. In simple terms, the worse the overall surgical payor mix, the greater the needed subsidy by the anesthesia provider. Many hospitals are now well north of 50% CMS payors and CMS has decreased anesthesia reimbursement another 1.69% this year. Most commercial payors are seeking to decrease anesthesia reimbursement by renegotiating lower contracted rates, delaying payments, not paying for certified registered nurse anesthetist supervision, and most recently refusing to pay for anesthesia modifiers, which are often the most complex and sickest patients. In the last few months, we are aware of both regional and national groups being forced to take a 12% to 25% pay cut from the commercial payors.

What other implications are there regarding subsidies with specific reference to anesthesia care delivery?

There is a significant shortage of all types of anesthesia personnel. Anesthesiologists can move almost anywhere for a better work–life balance and increased compensation. The highly competitive cost of anesthesia coverage is the single most important driver of increasing anesthesia subsidies. Other causes include poor OR efficiency, eroding hospital payor mix and increased tertiary services requiring 24/7 in-house call. Most small “mom and pop” or local groups need hospital assistance in the form of retention or sign-on bonuses to simply retain their own providers and recruit new providers to meet expanding hospital coverage requirements. Pediatric anesthesia is in significant shortage now and fellowship-trained pediatric anesthesiologists can write their own ticket almost anywhere in the United States. Retention and/or sign-on bonuses of $100,000 are commonplace in today’s highly competitive market.

If the current political climate changes in Congress or the White House this November, would there be an effect on subsidies?

I don’t have a crystal ball or Ouija board. However, with the current shortage of highly trained anesthesia personnel and the increasing demand for surgical procedures—particularly both urgent and elective in an aging population—I predict continued pressure on hospitals and ambulatory surgery centers (ASCs) to provide subsidies to remain in business.

Do subsides vary geographically in the United States, and if so, why?

Anesthesia subsidies have traditionally varied geographically due to a number of factors. Many anesthesia groups in the western part of the country have been physician-only “eat what you kill” practices. In other words, the physician partners would cover all cases regardless of case type, payor mix or time of day. As hospital payor mixes have moved from commercial to more CMS, these groups are working harder and longer to generate less money. Newly trained anesthesiologists are unwilling to work long hours for a smaller piece of the pie. These are the factors in the ask for hospital assistance to cover underutilized ORs and specialty services, such as trauma and obstetrics.

The eastern and southern regions have tended to utilize the anesthesia care team, whereby anesthesiologists, certified registered nurse anesthetists and certified anesthesiologist assistants have worked in a collaborative fashion to care for patients in hospitals and ASCs.

As hospitals have expanded the number of ORs and non-OR anesthetizing locations (e.g., electrophysiology and endoscopy, cardiac catheterization labs), and created more Level I and II trauma centers, this has created a need for more full-time equivalents, regardless of how highly leveraged the anesthesia care team is.

Finally, are there any other factors that come into play that you would like to mention?

Yes, a few pieces of information might give your readers a better understanding of the dynamics driving subsidies. For example, across the United States, private payors for anesthesia services averaged about $82 per 15-minute unit in 2023, whereas CMS reimbursement is now about 26% of that. So, in the present market environment, hospitals need to rely on increasing surgical revenue in part to subsidize anesthesia services at all their anesthetizing locations. With the growing senior population in our country, anesthesia services for specialty surgery like orthopedics and other elder care–related surgeries, hospitals and ASCs are forced to pay subsidies to retain qualified anesthesia providers.

As promised, a few figures from actual, recently negotiated subsidies for hospitals and health systems by Enhance Healthcare Consulting, in 2022, will give you a sense of the numbers we are talking about. From the Northeast, hospitals had previous subsidies of $14 million, which were increased to $26 million in 2022 after negotiations. In the Northwest, subsidies rose from $3.1 million to $12 million; in the Southwest from $1.5 million to $11 million; in the South from $19.5 million to $30 million; and the Midwest from $4.8 million to $19 million. Clearly, the dramatic growth in subsidies offered by hospitals and health systems to anesthesia providers reflects the “invisible hand” of capitalism at play with regard to supply, demand and the betterment of society. With the current demand for all types of anesthesia services unabated and growing, the continued reduction in payments by government and commercial payors, coupled with the desire of anesthesia professionals to achieve improved work–life balance, the need for substantial subsidies to retain qualified professionals will likely be the norm in the majority of hospitals, ASCs and anywhere anesthesia professionals practice.

Sherer is a retired anesthesiologist. He reported no relevant financial disclosures.