In my 34 years in the healthcare industry, I cannot recall anything like Elevance’s recent announcement and subsequent reversal about reimbursing anesthesia coverage. Anesthesiologists, consumers and media responded viscerally – and predictably – to the idea that Anthem Blue Cross Blue Shield plans in Connecticut, Missouri and New York would unilaterally deny payment for anesthesia claims that exceeded abstruse time limits. When I learned of it, I thought of Marvin Stanwyk’s question to Irwin M. Fletcher in the movie Fletch:
“Boy, what in the hell is a matter with you?”
Beyond the completely tone-deaf public relations of refusing to pay for services rendered while a patient is almost certainly unconscious, Elevance, mainstream media and social media all revealed a fundamental misunderstanding of how anesthesia services are *actually* reimbursed. In turn, they failed to recognize one of the rare instances when the U.S. health economy observes the laws of economics.
According to the Legal Information Institute, fair market value (FMV) “is what an informed and unpressured buyer would pay to an informed, unpressured seller in an arm’s length transaction.”1 In turn, an arm’s length transaction “is commonly used to refer to transactions in which two or more unrelated and unaffiliated parties agree to do business, acting independently and in their self-interest.”2
The basic facts of anesthesia in the health economy are as follows:
Paradoxically, these factors result in one of the few examples of FMV in the health economy, revealing the difference between the rate for, as compared to the yield from, the provision of anesthesia services.
Because most anesthesiologists are not employed by hospitals or ASCs, the anesthesia services market has buyers and sellers. Because the supply of anesthesiologists and CRNAs is insufficient to accommodate surgical demand – which reflects an increase in the number of sites of care as opposed to increasing surgical demand – anesthesia practices command a yield that exceeds the rate that Medicare and commercial insurers reimburse.
Guaranteeing access to anesthesia coverage requires most hospitals and many ASCs to subsidize anesthesia practices through an income guarantee, which represents the yield in the anesthesia services market. In this model, an anesthesia practice provides the hospital or ASC with proof of their collected receivables, whether from Medicare, Medicaid, commercial insurers or patients, and the hospital or ASC pays the difference between the amount of the income guarantee and the collected receivables.
This model of anesthesia reimbursement has predominated for years because of this reality: anesthesia coverage is a “nice to have” for commercial and government payers and a “must have” for hospitals and ASCs. Because commercial and government payers have always known that hospitals and ASCs would always do whatever was necessary to guarantee anesthesia services, they have never been required to pay FMV for anesthesia practices to be “in-network.”
Even so, hospitals and ASCs, as rational economic actors, want to limit their financial exposure. Until the No Surprises Act, hospitals and ASCs were incentivized to let anesthesia practices be “out of network,” resulting in patients paying a significant portion of the billed charges for professional anesthesia services, which improved the collections for the anesthesia practices, which resulted in a lower subsidy from hospitals and ASCs.
Consequently, the “secret” of anesthesia services specifically, and hospital-based specialties generally, is that commercial insurers have long been content to let their members bear the financial burden resulting from “in-network” rates for physician services that were well below FMV. As a result, the real impact of the No Surprises Act is that Congress has permanently enshrined an increase in the “cost of goods sold” for hospitals and ASCs to provide surgical services to patients, since the “patient portion” of anesthesia reimbursement has declined even as the “allowed amounts” for in-network rates and Medicare are relatively unchanged.
That brings us back to the question of what Elevance was thinking…
According to numerous media reports, Elevance announced that it would use CMS’s physician work time limits to determine anesthesia reimbursement, with exceptions for patients under the age of 22 and maternity cases.5 According to the American Society of Anesthesiologists, Elevance’s policy would have been implemented as follows:
“If an anesthesiologist submits a bill where the actual time of care is longer than Anthem's limit, Anthem will deny payment for the anesthesiologist’s care. With this new policy, Anthem will not pay anesthesiologists for delivering safe and effective anesthesia care to patients who may need extra attention because their surgery is difficult, unusual or because a complication arises.”6
Putting aside the blatant ageism in a policy that provided reimbursement based on the age of the patient, a time-based reimbursement policy for anesthesia is inherently illogical since the length of a surgery depends on the surgeon and the clinical condition of the patient, not the anesthesiologist. How is it possible that this fact wasn’t the sole consideration in Elevance’s decision to modify its anesthesia coverage policy?
Elevance’s focus on CMS’s physician work time limits begs the question of how long an average surgery lasts. An analysis of the time-based units of anesthesia billed for almost 3.6M surgeries performed on Medicare beneficiaries in 2023 reveals these data:
What surgeries frequently take longer than average?
As a general principle, the longer the surgery, the more complicated the surgery. In turn, the more complicated the surgery, the more likely that the surgery might take longer than expected. In 2025, the length of a cataract surgery is very predictable, but the length of a transplant is less so.
So, what are the in-network rates that Elevance did not want to pay for surgeries that might take longer than expected?
Logically, Elevance’s new policy was most likely to deny payment for the most complicated surgeries. In any event, Elevance was attempting to pay even less of a FMV price – which may or may not be a “fair” price – than they already were for surgeries in which almost 100% of its members were unconscious.
To the credit of someone at Elevance, Elevance reversed its policy on December 5, though the significance of that timing is not lost on anyone who is paying attention. In their update to their anesthesia reimbursement policy, Anthem stated that the now retracted policy
“was only designed to clarify the appropriateness of anesthesia consistent with well-established clinical guidelines. Any medically necessary anesthesia would have been paid under the update. In circumstances when anesthesia providers went outside of well-established clinical guidelines they would have been able to submit medical documentation to support accurate payment...Anthem remains highly committed to reducing waste and the cost of care for consumers and ensuring that care providers are reimbursed appropriately for the services provided to members.”7
To each his own, but reimbursement for the professional component of anesthesia services would not be on my list of the top 1,000 ways to reduce waste in the health economy, especially if my company was already paying below FMV rates for the service. As a bit of free advice, I might suggest that any commercial insurer that is “highly committed to reducing waste and the cost of care for consumers” start with a review of the commissions they pay to health insurance brokers.
Health economy stakeholders waste enormous amounts of time and energy focused on “innovation” and “transformation,” which they promote ad nauseam. They are quieter about their efforts to be “clever,” unintentionally revealing their intuitive understanding of the reality of healthcare’s negative-sum game, a game that is won by taking something from another party.
If you need to take something from another party, then you should focus on taking something valuable. When asked why he robbed banks, Willie Sutton famously replied, “because that’s where the money is.”8 Why Elevance thought that reimbursement for the professional component of anesthesia services is where the money is in the health economy is, perhaps, revealing. Recently, it has been revealed that some Americans believe that companies like Elevance are the bank.
Health economy stakeholders have done a lot of stupid, uninformed, greedy, short-sighted and seemingly clever things over the past few decades. As an industry, we must change that, and we might be better served by following the advice of Warren Buffett’s colleague Charlie Munger, who famously noted this:
“It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
Consider that for your New Year’s resolution…