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Anesthesia CostsCMSHealthcare Budget
March 24, 2025
Understanding the Medicare Budget for Anesthesia

Understanding the Medicare Budget for Anesthesia

The current administration is very focused on ways to trim the national budget. They have been exploring ways to eliminate waste and inefficiency in many departments by weeding out redundant and unneeded federal employees. There has also been some discussion regarding possibly reducing the cost of Medicare, Medicaid and Social Security. Healthcare is likely to be a prime target because its cost has been growing at a significant rate in recent years. Because of its role in American hospitals, anesthesia is clearly an essential service. This is not to say it will be immune to potential cuts; but it is crucial that our readers understand how anesthesia costs have been managed over the years.

Understanding the Medicare Budget for Anesthesia

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The most significant factor affecting the cost of healthcare in the U.S. is demographic trends. The American population is aging as baby boomers become Medicare recipients. The fastest growing segment of our population is the over-80 crowd. As the chart below clearly indicates, the percentage of Americans enrolled in Medicare has already reached 20 percent and is consistently growing.

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Last year’s budget for Medicare was $689,000,000, which was 10 percent of the federal budget. The Medicare population has been growing at about three percent per year as compared to the overall American population, which has started growing at a diminishing rate. Medicare calculates allowable payments based on the ASA Relative Value Guide (RVG) and 15-minute time units. The average units per surgical case were averaging about 12, but this has been declining gradually because of the growth of certain service lines, such a colonoscopy. The budget for Medicare services is then divided by the total number of projected billable units to determine a published per-unit rate. This explains why Medicare rates have declined so dramatically over the past decades. Currently Medicare rates are in most cases less than 50 percent of commercial contract rates.

The Centers for Medicare and Medicaid Services (CMS), long ago, made a strategic decision to balance the Medicare budget by reducing the rate paid per unit. This has resulted in very significant reductions over the past decades. Although rates are now relatively consistent from year to year, the result does not yield enough payment to cover the actual cost of providing the service. The typical anesthesiologist working alone can generate 10,000 units per year. At $20 per unit, this only results in total payments per year of $200,000, which is well below the cost of an anesthesiologist. The result of this disparity is that practices need to get more per unit from their commercial payers or get financial support from the facilities they serve.

Although anesthesia rates have basically bottomed out, the growing senior population will definitely prove to be a major challenge.  It will be up to the anesthesia community to make their voices heard in the halls of Congress and with representatives of CMS as these demographic changes continue to impact the specialty.