Most physicians are paid according to relative value units tied to an office visit, exam or procedure, but anesthesiologists are not.
Their compensation runs on a unit-based formula that reflects a procedure’s complexity, a patient’s medical condition and the amount of time an anesthesiologist spends managing that patient’s care — a structure unique enough among physician specialties that even many physicians outside the field don’t fully understand it.
Anesthesia payment is built on four components. The first, base units, is assigned to each procedure to reflect its complexity, technical demands and the level of vigilance it requires. Base units are established through the American Medical Association’s Relative Value Update Committee process, approved by CMS and published in the Medicare Physician Fee Schedule, where most private insurers adopt them as a starting point for payment.
Time units make up the second component, and they are where anesthesia billing diverges most sharply from the rest of medicine. Rather than a flat code for a visit, anesthesiologists are paid for the actual minutes spent managing a patient’s vital functions before, during and immediately after a procedure, until that patient is safely transferred to recovery. There is no predetermined or average time value built into the formula. A procedure that runs longer than expected, whether from a complication or an unexpected finding, requires sustained attention and monitoring, and it accrues more time units to reflect that.
The third component, modifying units, accounts for patient risk. Physical status modifiers add units when a patient has a severe underlying disease, a chronic illness or presents as an emergency, recognizing the additional assessment, monitoring and care coordination those cases demand.
The fourth component, the anesthesia conversion factor, is the dollar figure that turns total units into an actual payment, and it is where the system splits sharply by payer. Medicare sets its conversion factor annually based on budget neutrality and other regulatory requirements. Commercial conversion factors are not standardized at all; individual anesthesiology groups must negotiate a rate directly with each commercial payer they contract with.
That negotiation gap has consequences that compound over time. Facility payments to hospitals and ASCs include annual inflation adjustments. Physician payment under the Medicare Physician Fee Schedule does not. As practice costs have continued to climb, Medicare’s anesthesia conversion factor hasn’t kept pace, and Medicare payment for anesthesia services now sits at roughly 25% of what commercial insurers pay for the same units. Medicaid payment varies widely by state and is often lower still.
For hospital and health system finance leaders, that gap isn’t an academic pricing quirk. It’s a major reason anesthesia has become one of the physician specialties most likely to require a subsidy just to maintain adequate coverage. The share of ASCs expecting to pay stipends jumping from 28% in 2024 to 44% in 2025, according to a VMG Health report, a 57% increase in a single year.
Additionally, 60% of ASC leaders ranked anesthesia coverage among their top three financial challenges for 2026, according to the same VMG Health survey, making it the most commonly cited operational concern heading into the year.
Every additional point of Medicare and Medicaid exposure in a practice’s surgical case mix pushes more of that cost onto the balance sheet, whether through direct stipends, income guarantees or renegotiated coverage agreements.
The underlying formula isn’t likely to change. But for executives negotiating anesthesia coverage contracts, understanding why the specialty’s economics behave so differently from the rest of the medical staff — and why that gap tends to widen rather than close — is increasingly part of the job.
At the Becker’s 32nd Annual Meeting: The Business and Operations of ASCs, taking place October 29-31 in Chicago, ASC leaders, surgeons and healthcare executives will explore strategies to drive growth, enhance operational performance, navigate reimbursement challenges and prepare for the future of ambulatory surgery. Apply for complimentary registration now.
