Anesthesia practices in peril when hospitals lose money

Forget the pandemic, say hospital executives. What have you done for us lately?

There was a time, at the peak of the pandemic, when many of us believed that anesthesiologists finally would get the public recognition and respect we’ve earned – at a painful price – for our front-line work in airway management and critical care.

Some anesthesiologists like Ajit Rai, MD, a pain medicine specialist in Fresno, California, even boarded flights to New York last spring to help hospitals overrun with critically ill COVID patients. News reports nationwide celebrated these physicians as “healthcare heroes”.

That was then.

Today hospitals are struggling to maintain their financial stability in the face of the revenue hit they took in 2020 when elective case volumes plummeted. Total knee and hip replacements were down by 53 and 42 percent, respectively, compared with 2019 numbers, and even cardiac catheterization cases were 24 percent fewer. At least 47 hospitals closed or declared bankruptcy in 2020, with more likely to follow.

The American Hospital Association estimates that hospital revenue in 2021 could be down anywhere from $53 billion to $122 billion from pre-pandemic levels. Hospitals are still dealing with supply chain and labor market disruption, paying premium prices for traveling ICU nurses, and facing the high cost of treating resource-intensive COVID patients.

When a hospital is desperate to stay afloat, administrators are going to look anywhere they can for ways to cut costs. Subsidies to anesthesiology groups are in their crosshairs.

Suddenly, an RFP appears

An estimated 85 to 95 percent of hospitals currently subsidize anesthesiology services to some degree. Reasons vary from underutilized OR time to poor third-party payment for trauma or obstetric services. If the anesthesiology department is perceived as thriving financially, a cash-strapped hospital will want to stop the subsidies even if that could make it difficult for the group to attract or retain well-qualified anesthesiologists.

Rather than bothering to negotiate with the existing group, hospital executives may take the quicker, easier route of putting out an RFP, or request for proposals, to attract bids from anesthesia practice management firms such as NorthStar, NAPA, Vituity, or Envision. These companies advertise their ability to improve efficiency and outcomes while reducing hospital costs. They promise to “align the interests” of the anesthesia department and the hospital while eliminating the need for subsidies.

Sometimes the corporate acquisition of an anesthesia practice is friendly, with a lucrative buyout for the senior partners in the group. Today, though, less amicable transitions are occurring more often. If the current group loses the bid for the contract, the anesthesiologists have no certainty that they’ll be invited to keep practicing at the same location, whether they were full partners or not.

Turmoil in Michigan

In August 2020, Beaumont Health signed an agreement for NorthStar Anesthesia to begin providing services at its Detroit-area hospitals, including the flagship 1098-bed teaching hospital in Royal Oak. News reports noted that many (perhaps up to 50 percent) of the anesthesiologists and nurse anesthetists left as a result of the new NorthStar contract, and some surgeons and other specialists resigned too. Cardiologists protested to no avail, expressing “serious concerns that NorthStar will not be able to provide the quality of cardiac anesthesia services that we have received for several decades.”

The death under anesthesia of a colonoscopy patient in January 2021 spotlighted the ongoing turmoil in Beaumont Royal Oak anesthesia services, as anesthesiologists and nurse anesthetists were brought in from other campuses or hired as locum tenens contractors to cover cases. To advocate directly with NorthStar for “safe staffing ratios and greater patient safety measures”, Beaumont’s remaining nurse anesthetists voted overwhelmingly on March 30 to unionize.

Abrupt changes in care model

When anesthesia contracts change hands, changes in the care model often follow.

At Cedars-Sinai Medical Center in Los Angeles, a physician-only private group delivered anesthesiology services for decades. When the hospital took over recently and “transitioned” anesthesiology into an academic department, a number of the anesthesiologists were not offered employment in the new entity. Instead, Cedars-Sinai is now recruiting nurse anesthetists, offering pay sufficient to lure them from other employers in a market where the average yearly pay for a nurse anesthetist is more than $199,000.

A recent letter from Richard Keddington, the CEO of Watertown Regional Medical Center in Wisconsin, was widely circulated on Twitter after it announced that the hospital, under the guidance of Envision Healthcare, “is moving to a 100% CNRA [sic] model in our anesthesia department.” Mr. Keddington went on to say that “the literature is clear that care quality and outcomes are just as good with CRNAs…You shouldn’t see much of a change.” Any responses from the internist, the emergency physician, and the orthopedic surgeon who first received this missive haven’t been made public as of this writing.

Wisconsin and California are among the 19 states that have “opted out” of the federal physician supervision requirement for nurse anesthetists. However, since March 2020, a “temporary” waiver by CMS of the federal supervision requirement has been in effect for all 50 states. The decision hasn’t been made yet whether the temporary waiver will become permanent; the period for submitting comments to the Federal Register ended in December. If I had to bet, I would wager that CMS will make the waiver permanent despite our objections.

The “zone coverage” model gains traction

Even if state law or hospital bylaws mandate physician supervision of nurse anesthesia practice, there is nothing to prevent an anesthesiologist from overseeing more than four cases at a time as long as there is no billing claim that “medical direction” was given. Typically, claims submitted for more than four anesthetizing locations use the “QZ” billing modifier to indicate “unsupervised CRNA” practice even though an anesthesiologist may have been available for assistance or rescue.

The Anesthesia Business Consultants newsletter opined even before the pandemic, in the fall of 2019:  “While the alternative to physician-only anesthesia care used to be medical direction, now unsupervised CRNA care, the QZ model, is gaining popularity. In fact, new models of delivery such as the zone model are being developed to restrike the traditional relationship between doctor and nurse. The zone model assumes that a physician oversees, not medically directs, a squad of CRNAs.”

Will hospital financial woes continue?

Though elective surgery has resumed, financial strain may plague most hospitals for some time to come. CMS has started to eliminate the Inpatient Only (IPO) list of 1700 procedures for which it pays only when they are performed in the hospital inpatient setting. What this means is that money-making procedures including total hip arthroplasty likely will move to free-standing ambulatory surgery centers if the patient is relatively fit, leaving hospitals with the older, sicker population.

Many health system administrators know little and care less about what we do every day, or what so many of us did to help our patients and our colleagues survive the terrible COVID surges of last spring and this winter. We can expect more corner-suite interest in cutting anesthesia subsidies and signing deals with practice management corporations.

It’s possible that nurse anesthetists eventually could price themselves out of the market, or tarnish their image with unacceptable complication rates in their independent practice. We can predict with confidence a downward trend in what insurers are willing to pay anesthesiologists for our services. If these market forces converge, it may once again make sense from a hospital’s point of view for anesthesiologists to do cases personally rather than cover nurse anesthetists in “zones” that grow ever larger.

Only time will tell us how anesthesiology practice and American healthcare are going to evolve. Only this is certain: we would be foolish to think that anyone’s gratitude will last longer than yesterday’s news.


This article and image appeared originally in the June 2021 issue of the ASA Monitor


Barbara Perona, MD

As always, I am impressed by and delighted to read your missive. A complex issue that is so poorly understood by anesthesia providers and administrators alike. Thank you and yes I unfortunately wholeheartedly agree with your final statement.
Again, thank you for this article !



You always bring current issues into focus better even if news is potentially gloomy. Hope see you in Chicago, Scott



You incorrectly include CEP/Vituity as part of the publicly traded companies or private equity groups that are decimating private anesthesia groups all in the name of profits.

Vituity is a multi specialty physician partnership that does place bids for anesthesia contracts during RFPs as well as multiple other contracted specialties. It’s an awful landscape for small anesthesia groups and their future as an independent group. Vituity at least offers way more equity for a prior group and does not skim the cream off the top to reward the C-suite, shareholders or private equity.


Philip Snyder, MD

I enjoyed your article, but I disagree with your conclusion. I believe highly specialized anesthesiologists in areas (often academic) will enjoy an exclusive practice for some time, but except for those few, there are far too many who cannot compete with cheaper nurses. The problem goes back to the very beginning in the Ether Dome. Morton was not Snow and ether is far safer than chloroform. Nuns and nurses in the US were doing anesthesia with ether for decades before MDs caught on (By comparison, chloroform was so dangerous only doctors could administer it in England). And then it was too late because surgeons like George Crile and the Mayo brothers vigorously defended their nurse anesthetics against medical board and legislative challenges to the point today we have a legal framework where nurses can practice anesthesia in every state under state and federal law without an anesthesiologist anywhere nearby. As I am sure you know, that’s why in part the AMA was originally antagonistic to allow an ASA section in the 1930s. Bottom line, the only backstop preventing nurses unsupervised by anesthesiologists are some hospitals’ by-laws. I’m sure you also know that in the 1980s, economists at the Harvard School of Public Health became antagonistic to our time-based billing system that survived the FTC and the DOJ challenges in the 1960s and 1970s. We kept our time-based billing despite these Harvard economists, but the result was a huge ding in our conversion factoring 1992 yielding today a Medicare factor just over $20. Fast forward to now. Payor mixes in many (most) venues are substantially impacted by Medicare (which is threatening to expand coverage) and anesthesiologists cannot make their salaries without substantial subsidy, including the hospital subsidies you write about. A critic would sayer are overpriced and over trained, and no safety study definitively shows material differences justifying the price. Enter the private equity vultures. We are getting mowed down. Too many anesthesiologists for a system running on cheaper nurses. It won’t happen over night, but it is happening. Lower salaries and disincentivized staffing services backed by private equity are mushrooming. Meanwhile, the ASA is arranging deck chairs trying to come up with a way to get the Medicare conversion increased right after we’ve spent trillions on COVID.


Dear Dr. Snyder:

I don’t disagree with you at all. Stay tuned for my upcoming column in Anesthesiology News. Thank you for taking the time to read and comment!


Karen Sibert


Dr Bob

The CRNAs are getting into pain management, many with no training whatsoever. I see patients being given epidural steroids for back pain( rather than radicular pain), facet intra-articulate steroid facet blocks when they have no RF machine, high opioid doses etc. it really is just unbelievable but small rural hospitals will privilege anyone with a pulse. I used to get angry when non pain boarded anesthesiologists practiced pain with no real training, but this is so much worse. The public has no idea, nor do the family doctors that refer their patients. Fortunately, I’m ready to retire. But it’s sad to see.


Brad V.

The rod of Asclepius serpent has been eating its tail in anesthesiology for decades.
Move along; nothing new here.


Tom Thomas, MD

This is an excellent article. However, I do have one issue with the section under “Zone Coverage.” It is a misconception that one can “supervise” an unlimited number of CRNAs/CAAs, simply bill cases with the QZ modifier and not affect reimbursement. Unless one practices in one of the 17 “opt out” states, a CRNA/CAA must be supervised by a physician, either an anesthesiologist or the proceduralist. (I am ignoring the temporary rule during the COVID crisis). For proper Medicare billing, in order to collect 100% of the allowable reimbursement, one must medically direct the CRNA and bill the case QK/QX–50% to the anesthesiologist (QK) and 50% to the CRNA/CAA (QX). One cannot medically direct more than 4 concurrent cases and all 7 steps must be met and documented for proper medical direction. Some Medicare Administrative Contractors (MACs) will allow cases where one or more of the 7 steps are not met (so called “incomplete” medical direction) to be billed QZ–100% of the allowable is paid to the CRNA (is such a scenario, if the anesthesiologist does not employ the CRNA, the anesthesiologist is paid 0). If more than 4 concurrent cases are being supervised by an anesthesiologist, then the cases are billed with the modifier AD for the anesthesiologist. AD is reimbursed with 3 base units. If you document you were present for induction, you may add 1 additional unit. There are no time units billed for the anesthesiologist’s portion of the case, only the 3 base units. The CRNA portion is reimbursed with the QX modifier and is paid 50% of the allowable. For longer cases, the reimbursement is significantly affected when billing AD/QX, as compared to QK/QX. The idea that a single anesthesiologist can supervise an unlimited number of CRNAs, not sign the chart, simply bill the cases with the QZ modifier and collect 100% of the allowable is fallacious. You will get paid what you bill (at least from Medicare), but you are rolling the dice, hoping a Medicare auditor never darkens your doorway. Most of the MACs state that billing QZ for “incomplete” medical direction should be a rare event. A group that is billing all or most of their cases QZ (and are not in an opt out state) may find themselves on the audit radar. As they say, “pay back is hell.” In the case of a Medicare audit where you have been billing QZ incorrectly, pay back would be not just hell, it would be VERY expensive. Section 50, page 82:


Thanks, author for such a great post. I see the CRNAs are getting into pain management. Patients being given epidural steroids for back pain. The public has no idea what is happening with them.
Keep up the good work!




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