Medicare Physician Payments: Medicare and Private Payment	 
Differences for Anesthesia Services (27-JUL-07, GAO-07-463).	 
                                                                 
In 2005 Medicare paid over $1.4 billion for anesthesia services. 
These services are generally provided by anesthesia		 
practitioners, such as anesthesiologists and certified registered
nurse anesthetists (CRNAs). A government-sponsored study found	 
that Medicare payments for anesthesia services are lower than	 
private payments. Congress is concerned that this difference may 
create regional discrepancies in the supply of anesthesia	 
practitioners, and asked GAO to explore this issue. GAO examined 
(1) the extent to which Medicare payments for anesthesia services
were lower than private payments across Medicare payment	 
localities in 2004, (2) whether the supply of anesthesia	 
practitioners across Medicare payment localities in 2004 was	 
related to the differences between Medicare and private payments 
for anesthesia services or the concentration of Medicare	 
beneficiaries, and (3) compensation levels for anesthesia	 
practitioners in 2005 and trends in graduate training. GAO used  
claims data from two anesthesia service billing companies that	 
bill private insurance payers and Medicare to calculate payments 
by payer for seven anesthesia services in 41 Medicare payment	 
localities. GAO also used data from the Centers for Medicare &	 
Medicaid Services (CMS) and other sources to determine		 
practitioner supply and Medicare beneficiary concentration in 87 
Medicare payment localities.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-463 					        
    ACCNO:   A73534						        
  TITLE:     Medicare Physician Payments: Medicare and Private Payment
Differences for Anesthesia Services				 
     DATE:   07/27/2007 
  SUBJECT:   Anesthesiology					 
	     Cost analysis					 
	     Health care services				 
	     Medical fees					 
	     Medical services rates				 
	     Medicare						 
	     Payments						 
	     Physicians 					 

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GAO-07-463

   

     * [1]Results in Brief
     * [2]Background

          * [3]Medicare's Calculation of Payments for Anesthesia Services
          * [4]Physician Acceptance of Medicare's Payment as Payment in Ful
          * [5]Anesthesia Practitioners Can also Provide Other Physician Se
          * [6]Market Factors Influence Private Payments

     * [7]Average Medicare Payments for Anesthesia Services Provided b
     * [8]Overall Supply of Anesthesiologists and CRNAs Combined Was N

          * [9]Overall Supply of Anesthesia Practitioners Was Not Correlate
          * [10]Overall Supply of Anesthesia Practitioners Was Not Correlate

     * [11]Compensation of Anesthesia Practitioners Was Reported to Com
     * [12]Agency and External Comments and Our Evaluation
     * [13]Appendix I: Scope and Methodology

          * [14]Difference in Medicare and Private Payments for Anesthesia S
          * [15]Supply of Anesthesia Practitioners
          * [16]Concentration of Medicare Beneficiaries
          * [17]Correlation Analysis
          * [18]Data Reliability and Study Limitations

     * [19]Appendix II: Comments from the Centers for Medicare & Medica
     * [20]Appendix III: GAO Contacts and Staff Acknowledgments

          * [21]GAO Contacts
          * [22]Acknowledgments

     * [23]Related GAO Products

          * [24]Order by Mail or Phone

Report to the Subcommittee on Health, Committee on Ways and Means, House
of Representatives

United States Government Accountability Office

GAO

July 2007

MEDICARE PHYSICIAN PAYMENTS

Medicare and Private Payment Differences for Anesthesia Services

GAO-07-463

Contents

Letter 1

Results in Brief 7
Background 8
Average Medicare Payments for Anesthesia Services Provided by
Anesthesiologists Alone Ranged from 51 Percent to 77 Percent Lower than
Average Private Payments 14
Overall Supply of Anesthesiologists and CRNAs Combined Was Not Correlated
with Payment Differences for Anesthesia Services or Concentration of
Medicare Beneficiaries 15
Compensation of Anesthesia Practitioners Was Reported to Compare Favorably
with Other Practitioners, and Anesthesiology Residencies and Nurse
Anesthesia Graduates Have Increased 17
Agency and External Comments and Our Evaluation 18
Appendix I Scope and Methodology 21
Appendix II Comments from the Centers for Medicare & Medicaid Services 30
Appendix III GAO Contacts and Staff Acknowledgments 33
Related GAO Products 34

Tables

Table 1: Description, Number of Cases, and Weights for Seven Anesthesia
Services included in Calculation of Anesthesia Service Payment Difference
25
Table 2: Average and Range of Anesthesia Practitioner Supply per 100,000
People, 2004 26
Table 3: Average and Range of Medicare Beneficiary Concentration, 2004 27
Table 4: Correlation Coefficients between Supply of Anesthesia
Practitioners and Average Medicare and Private Payment Differences, by
Medicare Payment Locality, 2004 28
Table 5: Correlation Coefficients between Supply of Anesthesia
Practitioner and Medicare Beneficiary Concentration, by Medicare Payment
Locality, 2004 28

Figures

Figure 1: Example of a Medicare Payment for an Anesthesia Service
Associated with Lens Surgery in the Connecticut Medicare Payment Locality,
2004 11
Figure 2: Distribution of Percent Difference in Medicare and Private
Payments for Seven Anesthesia Services Provided by Anesthesiologists Alone
across 41 Medicare Payment Localities, 2004 14

Abbreviations

AA Anesthesiologist Assistant
AANA American Association of Nurse Anesthetists
AMA American Medical Association
ASA American Society of Anesthesiologists
BESS Medicare Part B Extract Summary System
CCNA Council on Certification of Nurse Anesthetists
CMS Centers for Medicare & Medicaid Services
CRNA Certified Registered Nurse Anesthetist
HMO Health Maintenance Organization
MedPAC Medicare Payment Advisory Commission
MGMA Medical Group Management Association
NRMP National Resident Matching Program
PPRC Physician Payment Review Commission
RVU relative value unit

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office
Washington, DC 20548

July 27, 2007

The Honorable Pete Stark
Chairman
The Honorable Dave Camp
Ranking Minority Member
Subcommittee on Health Committee on Ways and Means
House of Representatives

In 2005, Medicare--the federal program that helps pay for physician and
other health care services furnished to the nation's elderly and
disabled--paid over $1.4 billion for anesthesia services, which are
services associated with the administration of anesthesia to patients
undergoing surgical or other invasive procedures.^1 Anesthesia services
can be delivered in a variety of settings and are generally provided by
anesthesia practitioners, which include anesthesiologists and certified
registered nurse anesthetists (CRNAs).

Before 1992, Medicare paid for physician services, which include
anesthesia services, using a methodology based on physicians' historical
charges. In 1992, this methodology was replaced by a physician fee
schedule that based payments for physician services on the amount of
resources used to provide each service relative to all other services,
adjusted for differences in the costs of providing the service across
geographic areas, known as Medicare payment localities.^2 Under the new
physician fee schedule, Medicare payments for some specialties were
expected to increase while payments for other specialties, including
anesthesiology, were expected to decrease compared with the payments based
on physicians' historical charges. After the first year the physician fee
schedule was in effect, Medicare payments for some physician
specialties--such as general and family practice--increased while payments
for other specialties--such as surgery--decreased. An analysis of 1992
data by the Physician Payment Review Commission (PPRC) found that Medicare
payments per service for general and family practitioners increased by 10
percent, while payments per service for surgical specialties decreased by
8 percent overall during this time period.^3

^1Centers for Medicare & Medicaid Services (CMS), Medicare Part B
physician/supplier data, 2005. CMS is the agency that administers the
Medicare program. The $1.4 billion represents payments made under Medicare
Part B, which helps pay for physician and other noninstitutional health
care services provided to Medicare beneficiaries.

^2CMS established Medicare payment localities to reflect geographic
variations in the relative costs required to provide physician services.
For the purposes of this report, we refer to "Medicare payment localities"
as "payment localities" or "localities." There are 89 payment localities.
Localities can encompass large geographic areas, from cities to entire
states. Many localities contain several cities, towns, and rural areas
with distinct characteristics and populations.

While there have been increases in Medicare payments for anesthesia
services since the implementation of the physician fee schedule,^4
anesthesia practitioners have maintained that Medicare payments for
anesthesia services are too low, especially when compared with the
payments for such services made by private insurance payers.^5 In a 2002
survey of health plans sponsored by the Medicare Payment Advisory
Commission (MedPAC), researchers estimated that Medicare payments for
anesthesia services were about 61 percent lower than private insurance
payments.^6,7,8 In contrast, a more recent analysis conducted for MedPAC
of 2004 claims data found that Medicare payments for physician services,
excluding anesthesia services, were, on average, 17 percent lower than
private payments.^9

^3According to CMS, the first-year impact of the physician fee schedule on
anesthesia service payments was not calculated.

^4Medicare payments for physician services, including anesthesia services,
are updated by CMS on an annual basis, and except in 2002 when the update
was negative and in 2006 and 2007 when the updates were zero, the annual
payment updates have resulted in annual increases in payments for
physician services. In addition to these annual updates, payments for
physician services can also be adjusted to reflect reviews of the
valuation of individual services. As a result of these reviews, payments
for anesthesia services were increased in 1997 and again in 2003.

^5The differences between Medicare and private payments for anesthesia
services are not a legal criterion for determining Medicare payment
reasonableness.

^6MedPAC is an independent federal body that advises the U.S. Congress on
issues affecting the Medicare program.

^7For the purposes of this report, we also refer to "private insurance
payments" as "private payments."

^8Dyckman & Associates, Survey of Health Plans Concerning Physician Fees
and Payment Methodology: A Study Conducted by Dyckman & Associates for the
Medicare Payment Advisory Commission, No. 03-7 (Washington, D.C.: MedPAC,
August 2003).

Congress is concerned that regional differences between Medicare and
private payments for anesthesia services may create discrepancies in the
supply of anesthesia practitioners, which in turn could adversely affect
access to services for Medicare beneficiaries in some areas. In
particular, there is a concern that anesthesia practitioners will choose
to practice in areas where private payments for anesthesia services are
highest relative to Medicare payments and avoid areas where Medicare
beneficiaries are more concentrated relative to the general population.
While we previously reported on the impact of income--of which Medicare
payments are one source--on physicians' decisions on where to locate and
on Medicare beneficiary access to physician services, our work did not
focus on specific specialists such as anesthesiologists or nonphysician
practitioners such as CRNAs. In 2005 we reported that physician income,
regardless of its source, was generally not a primary factor influencing
physicians' decisions to locate in rural areas,^10 and in 2006 we reported
evidence of recent increases in Medicare beneficiary access to physician
services.^11 However, the difference between Medicare and private payments
for anesthesia services is larger than the difference in payments for
other physician services, raising the concern that Medicare payment levels
could affect where anesthesia practitioners locate and more generally
whether interest in anesthesiology as a profession is also affected.

You asked us to examine the difference between Medicare and private
payments for anesthesia services, and whether the supply of
anesthesiologists in an area relative to the general population is related
to the concentration of Medicare beneficiaries in the area. In this
report, we describe (1) the extent to which Medicare payments for
anesthesia services were lower than private payments across Medicare
payment localities in 2004, (2) whether the supply of anesthesia
practitioners across Medicare payment localities in 2004 was related to
the differences between Medicare and private payments for anesthesia
services or to the concentration of Medicare beneficiaries in these
localities, and (3) compensation levels for anesthesia practitioners
compared to other health care practitioners in 2005 and trends in the
number of anesthesiology residency positions and the number of graduates
of nurse anesthesia programs.

^9MedPAC, Report to the Congress, Medicare Payment Policy (Washington,
D.C.: March 2006).

^10GAO, Medicare Physician Fees: Geographic Adjustment Indices Are Valid
in Design, but Data and Methods Need Refinement, [25]GAO-05-119
(Washington, D.C.: Mar. 11, 2005).

^11GAO, Medicare Physician Services: Use of Services Increasing Nationwide
and Relatively Few Beneficiaries Report Major Access Problems,
[26]GAO-06-704 (Washington, D.C.: July 21, 2006). We found that two
indicators of access to physician services--the proportion of
beneficiaries who received services and the number of services provided to
beneficiaries--suggest that Medicare beneficiaries' access to physician
services increased from April 2000 to April 2005.

To examine the extent to which Medicare payments for anesthesia services
were lower than private payments, we used 2004 anesthesia service claims
data from two billing companies that bill and track payments from private
payers and Medicare on behalf of anesthesia practitioners. The two billing
companies together provided billing services on behalf of over 10 percent
of all anesthesiologists in the country in 2004. Although the anesthesia
service claims data from the two companies may not be generalizeable to
all anesthesia services provided by anesthesiologists, billing company
officials stated that their claims data were generally representative of
other companies that provide billing for anesthesia services and that
anesthesia practitioner groups that did not use billing services were not
that different from groups that did use billing services.^12 We ranked the
anesthesia service codes present in the claims data in order of prevalence
across the Medicare payment localities represented in the billing
companies' claims data. Based on the rankings and prevalence across
localities, we identified a set of seven anesthesia services provided by
anesthesiologists alone that were most prevalent and well represented
across the Medicare payment localities included in the claims data.^13,14
We retained claims data for all seven of these anesthesia services in 41
of Medicare's 89 payment localities to include in our analyses. See table
1 in appendix I for descriptions of the seven selected anesthesia
services. Using these data, we calculated payment differences--that is,
the percentage by which Medicare payments were lower than private
payments, calculated as the difference between average private and
Medicare payments as a percentage of average private payments--for the
seven selected anesthesia services in each of the 41 Medicare payment
localities.

^12Due to the proprietary nature of the data and concerns about
identification of providers or beneficiaries, billing companies could not
provide payment information at a smaller geographic level--for example,
the county or zip code level.

^13We did not have a sufficient volume of claims for anesthesia services
provided by CRNAs alone to include data from CRNA-performed services in
our analysis. We also did not include data for anesthesia services
provided by anesthesiologists with the involvement of other anesthesia
practitioners because the billing information for these services from the
two billing companies was not consistent and we therefore determined it to
be not reliable.

^14In 2004, there were 270 different codes for anesthesia services, which
are generally classified according to the general area of surgical
intervention receiving anesthesia. Because we did not have claims
information for each of these 270 anesthesia services in each Medicare
payment locality, we focused our analysis on a set of anesthesia services
that were the most prevalent and well represented in our claims file.

To determine whether the supply--that is, the number--of anesthesia
practitioners was related to the differences between Medicare and private
payments for anesthesia services, we examined the correlation between the
payment differences for the set of seven anesthesia services provided in
the 41 Medicare payment localities and the supply of anesthesia
practitioners in the same 41 localities and determined whether they were
statistically significant.^15 Due to data limitations, our analyses of
payment differences were based on anesthesia services performed by
anesthesiologists alone. However, we included CRNA supply in our analysis
of anesthesia practitioner supply because we had sufficient data on their
supply and because they are major providers of anesthesia services to
Medicare beneficiaries.^16 To estimate the supply of anesthesia
practitioners, we used 2004 data from the American Medical Association
(AMA), the American Association of Nurse Anesthetists (AANA), the U.S.
Census Bureau, and Centers for Medicare & Medicaid Services (CMS) to
determine the number of anesthesia practitioners--both anesthesiologists
and CRNAs, separately and combined--per 100,000 people. To determine
whether the supply of anesthesia practitioners was related to the
concentration of Medicare beneficiaries,^17 we examined the correlation
between the supply of anesthesia practitioners and the concentration of
Medicare beneficiaries in the general population across 87 of Medicare's
payment localities and determined whether they were statistically
significant.^18

^15A correlation coefficient measures the strength and direction of linear
association between two variables without controlling for the effects of
other characteristics as in a multivariate analysis.

^16Because we did not have anesthesiology assistant supply data, these
providers were excluded from our supply analysis.

^17The concentration of Medicare beneficiaries is the percentage of
Medicare beneficiaries in the general population.

To compare compensation levels of anesthesia practitioners with those of
certain other physicians and nonphysician practitioners, we obtained 2005
compensation information from the Medical Group Management Association's
(MGMA) Physician Compensation and Production Survey, 2006 Report Based on
2005 Data. The MGMA report contains compensation information for
physicians and nonphysician practitioners from MGMA member organizations
that participated in the survey. MGMA member organizations include medical
group practices from across the country. To examine selected trends in the
number of anesthesiology residency positions and in the number of
graduates of nurse anesthesia programs, we used data from the National
Resident Matching Program (NRMP) and the Council on Certification of Nurse
Anesthetists (CCNA).^19 We used these data to examine the number of
anesthesiology residency positions offered and filled through the NRMP
between 2000 and 2006 and to examine trends in the number of newly
graduated nurse anesthetists between 1999 and 2006.

Our analyses aggregated data to the Medicare payment locality level and as
a result may not capture variations in payment differences, anesthesia
practitioner supply, and Medicare beneficiary concentration that might
exist below the locality level. Additionally, we do not know if the
payment differences, anesthesia practitioner supply, or Medicare
beneficiary concentrations calculated at the locality level are
representative of all areas within a locality, particularly for localities
that encompass entire states. We limited our correlation analyses to
determining whether a statistically significant association existed
between the supply of anesthesia practitioners and payment differences or
Medicare beneficiary concentration. However, practitioners' decisions on
where to locate could be influenced by many other factors and at levels
not captured by our analysis at the Medicare payment locality level.

^18This correlation analysis included data from the payment localities
representing the 50 states and the District of Columbia. We did not
consider data from Puerto Rico, the Virgin Islands, and Guam. The analysis
was therefore based on data from 87 of Medicare's 89 payment localities.

^19The NRMP places medical school graduates in residencies. Residencies
are 3- to 7-year graduate medical programs that physicians in the United
States must complete in order to provide direct patient care. NRMP
administrators estimate that the program fills approximately 80 to 90
percent of residencies nationwide each year.

To ensure the reliability of the data we used, we interviewed officials
from the billing companies and other organizations that provided us with
data, and reviewed documentation relating to anesthesia service claims,
anesthesia practitioner supply, and Medicare beneficiary information. We
tested the internal consistency and reliability of all the data and
determined they were adequate for our purposes. For more information on
our scope and methodology and on the reliability of our data, see appendix
I. We performed our work from September 2004 through May 2007 in
accordance with generally accepted government auditing standards.

Results in Brief

In 2004, average Medicare payments for a set of seven anesthesia services
provided by anesthesiologists alone were lower than average private
payments in 41 Medicare payment localities, and ranged, on average, from
51 percent lower to 77 percent lower than private payments. For all 41
payment localities, Medicare payments were lower than private payments by
an average of 67 percent. In 2004, average Medicare payments for the set
of seven anesthesia services ranged from $177 to $303 across the 41
payment localities, a range of 71 percent. In contrast, average private
payments for the same set of seven anesthesia services in that same year
ranged from $472 to over $1,300 across these localities, a range of 177
percent.

In 2004, there was no correlation between the overall supply of anesthesia
practitioners--that is, the total number of both anesthesiologists and
CRNAs per 100,000 people--and either the difference between Medicare and
private insurance payments for anesthesia services or the concentration of
Medicare beneficiaries in the Medicare payment localities included in our
analyses. However, when we examined the supply of anesthesiologists and
CRNAs separately, we found correlations between practitioner supply and
payment differences and practitioner supply and beneficiary concentration.
Specifically, we found that in 2004, the supply of CRNAs tended to
decrease as the difference between Medicare and private insurance payments
for anesthesia services increased in 41 Medicare payment localities. We
also found that in 2004, the supply of anesthesiologists tended to
decrease as the concentration of Medicare beneficiaries increased across
87 Medicare payment localities, while the supply of CRNAs tended to
increase as the concentration of Medicare beneficiaries increased across
these Medicare payment localities.

For 2005, compensation for anesthesia practitioners was reported to
compare favorably with other practitioners, according to information from
medical group practices from across the country that responded to a survey
of MGMA member organizations. The 2005 median annual compensation for
general anesthesiologists--approximately $354,240--was over 10 percent
higher than the median annual compensation for specialists and over twice
the compensation for generalists. For 2005, MGMA-reported median annual
compensation for CRNAs--approximately $131,400--was over 40 percent higher
than the MGMA-reported median annual compensation for either nurse
midwives or nurse practitioners and over 35 percent higher than the
MGMA-reported median annual compensation for physician assistants. The
number of anesthesiology residency positions offered through the NRMP and
the number of nurse anesthesia graduates have increased in recent years.

We provided a draft of this report to CMS and to two external commenters
for their review. CMS stated that our study provides a good summary of
information collected from a variety of sources on anesthesia payments and
the supply of anesthesia practitioners. One of the external commenters
generally agreed with our findings, while the other agreed with our
finding concerning payment differences for anesthesia services but
expressed concern with our finding dealing with supply. CMS' written
comments appear in appendix II.

Background

Anesthesia services are generally administered by anesthesia
practitioners, such as anesthesiologists and CRNAs. In 2004, there were
approximately 42,000 anesthesiologists and 30,000 CRNAs in the United
States. Anesthesiologists are physicians who have completed a bachelor's
degree, medical school, and an anesthesiology residency, typically 4 years
in length. CRNAs are licensed as registered professional nurses and have
completed a bachelor's degree and a 2- or 3-year nurse anesthesia graduate
program. In our prior work, we showed that physician specialists, who
include anesthesiologists, tend to locate in metropolitan areas.^20,21

^20GAO, Physician Workforce: Physician Supply Increased in Metropolitan
and Nonmetropolitan Areas but Geographic Disparities Persisted,
[27]GAO-04-124 (Washington, D.C.: Oct. 31, 2003).

^21Metropolitan areas are metropolitan statistical areas, primary
metropolitan statistical areas, or New England county metropolitan areas
as of 2001.

Anesthesia services can be provided in several ways. Anesthesia services
can be provided by anesthesiologists alone, by anesthesiologists working
with CRNAs or other practitioners,^22 or by CRNAs alone. In 2004,
proportionally more anesthesia services provided to Medicare beneficiaries
were provided by anesthesiologists working as the sole anesthesia
practitioner and by anesthesiologists working with another practitioner,
such as a CRNA, compared to the proportion of anesthesia services provided
by CRNAs as the sole anesthesia practitioner.^23

CRNAs can directly bill Medicare for the provision of anesthesia
services.^24 In order to receive Medicare payment for anesthesia services,
CRNAs generally are required to practice under the supervision of a
physician or an anesthesiologist, except in states that have obtained an
exemption from this requirement from CMS.^25 As of May 2007, CMS reports
that 14 states had requested and obtained this exemption, which would
allow CRNAs to practice independently without physician supervision in a
variety of inpatient and outpatient settings.^26

^22Other practitioners who can be involved in the provision of anesthesia
services include anesthesiologist assistants (AAs) and medical residents.
AAs are nonphysician anesthesia practitioners who complete a 2-year
graduate anesthesia training program and who work only under the direction
of anesthesiologists. Medical residents, physicians in graduate medical
training, can also be involved in the provision of anesthesia services,
but do not receive Medicare Part B reimbursement for their role in
providing anesthesia services.

^23GAO analysis of 2004 Medicare Part B Extract Summary System (BESS)
data.

^24Anesthesia services furnished by hospital-employed or contracted CRNAs
or AAs at qualified rural hospitals (including critical access hospitals)
can be paid on a reasonable cost basis and not under the physician fee
schedule.

^25Facilities must comply with Medicare Conditions of Participation in
order to participate in the Medicare program. Beginning in 2001, CMS
provided an exemption allowing CRNAs to practice without physician
supervision in hospitals, critical access hospitals, and ambulatory
surgical centers, and still receive reimbursement for the anesthesia
services they deliver to Medicare beneficiaries. In order for a state to
qualify for this exemption, the governor of the state must submit a letter
to CMS, attesting that this exemption is in the best interest of the
state's citizens and that the exemption is consistent with state law. See
42 C.F.R. SS 416.42(d); 482.52(c); 485.639(e).

^26The 14 states that have taken this exemption are Alaska, Idaho, Iowa,
Kansas, Minnesota, Montana, Nebraska, New Hampshire, New Mexico, North
Dakota, Oregon, South Dakota, Washington, and Wisconsin. However, in these
states, hospitals, critical access hospitals, and ambulatory surgical
centers may independently require physician supervision for CRNAs.

Medicare's Calculation of Payments for Anesthesia Services

Anesthesiologists derive approximately 28 percent of their income from
Medicare.^27 CRNAs derive approximately 35 percent of their patient mix
from Medicare.^28 In the Omnibus Budget Reconciliation Act of 1989,^29
Congress required the establishment of a national Medicare physician fee
schedule which sets payment rates for services provided by physicians and
other practitioners. Under the Medicare physician fee schedule, Medicare
payments for anesthesia services are generally the lesser of the actual
charge for the service or the anesthesia fee schedule amount. Payments for
anesthesia services are subject to the same annual updates as all other
services paid under the physician fee schedule. However, Medicare payments
for anesthesia services are calculated differently than payments for other
services covered by the physician fee schedule. Specifically, Medicare fee
schedule payments for anesthesia services are calculated using both "base"
and "time" units. The relative complexity of an anesthesia service is
measured by base units; the more activities that are involved, the more
base units assigned by Medicare.^30 The time spent performing an
anesthesia service is measured continuously from when the anesthesia
practitioner begins preparing the patient for services and ends when the
patient may be safely placed in postoperative care and is measured by
15-minute units of time with portions of time units rounded to one decimal
place. The sum of the base and time units are converted into a dollar
payment amount by multiplying the sum by an anesthesia service-specific
conversion factor, which also accounts for regional differences in the
cost of providing services.^31 As such, each Medicare payment locality has
a unique anesthesia conversion factor assigned by CMS.

^27J.D.Wassenaar and S.L. Thran, eds. American Medical Association,
Physician Socioeconomic Statistics: 2000 - 2002 Edition (Chicago: 2001).

^28The CRNA estimate of percent of patient mix from Medicare is based on
informal surveys of AANA members.

^29See Pub. L. No. 101-239, S6102(a), 103 Stat. 2106, 2169-84 (1989)
(adding S1848 to the Social Security Act) (codified, as amended, at 42
U.S.C. S1395w-4).

^30CMS determines its base units largely on the base units formulated by
the American Society of Anesthesiologists in its 1988 Relative Value
Guide. Medicare's anesthesia service base units range from 1 to 30 and are
uniform nationwide. With the exception of the base units assigned to
cataract or iridectomy surgery, all of Medicare's base units are taken
from the Relative Value Guide.

^31A conversion factor is a dollar amount that translates a service's
relative value into an actual payment amount. CMS established a separate
conversion factor for anesthesia services, apart from the general
conversion factor for medical and surgical services.

The calculation of the Medicare payment for an anesthesia service
associated with a lens surgery--the most common anesthesia service
provided to Medicare beneficiaries in 2004--performed by an
anesthesiologist or a CRNA working without another anesthesia practitioner
is shown in figure 1. Subject to certain exceptions, Medicare payments for
anesthesia services provided by anesthesiologists and CRNAs are equal in
most situations.^32 For illustrative purposes, we assumed that the service
was provided in the Connecticut payment locality and took 21 minutes to
perform. In 2004, the total Medicare payment for this service would have
been $99.31, which was equal to the product of the anesthesia service
conversion factor specific to the locality ($18.39) and the sum of the
base and time units associated with the anesthesia service (5.4 total
units).

Figure 1: Example of a Medicare Payment for an Anesthesia Service
Associated with Lens Surgery in the Connecticut Medicare Payment Locality,
2004

Note: This hypothetical payment includes beneficiary obligations.

In contrast, Medicare payments for other physician services are calculated
using relative value units (RVUs) that correspond to the different
resources required to provide physician services. The RVUs are each
adjusted to account for geographic differences in the cost of providing
services, summed, and then multiplied by a general fee schedule conversion
factor, which is applicable across all Medicare payment localities.

^32Currently, Medicare payments for anesthesia services provided by
anesthesiologists alone, by anesthesiologists working with CRNAs, and by
CRNAs alone are equivalent. Medicare payments for anesthesiologists and
CRNAs involved in the same service may not be equivalent when the
anesthesiologist is supervising more than four anesthesia services
concurrently.

Physician Acceptance of Medicare's Payment as Payment in Full

Physicians who bill Medicare for services can accept Medicare's payment as
payment in full (with the exception of the ability to bill a Medicare
beneficiary for 20 percent coinsurance plus any unmet deductible). This is
known as accepting assignment. Or they may exercise an option to bill a
Medicare beneficiary for the difference between Medicare's payment and its
limiting charge. This is known as balance billing.^33 High rates of
assignment may serve as an indicator of physicians' willingness to serve
Medicare beneficiaries. In April 2004, 99.4 percent of the anesthesia
services provided by anesthesiologists to Medicare beneficiaries were
provided by anesthesiologists who accepted Medicare payment as payment in
full. The anesthesiologists' assignment rate for anesthesia services was
comparable to rates for other hospital-based specialists, such as
pathologists (99.4 percent) and radiologists (99.6 percent), and was
higher than the rate for all other physicians (98.8 percent).^34

Anesthesia Practitioners Can also Provide Other Physician Services

In addition to anesthesia services, anesthesiologists and CRNAs can also
provide other nonanesthesia types of physician services covered by
Medicare. Payments for these other physician services--which can include
medical services such as office visits, and procedures such as pain
management services--represented approximately 31 percent of
anesthesiologists' and 2 percent of CRNAs' revenue from Medicare in
2004.^35 Because payment for these services is determined by a different
formula than anesthesia services, a significant portion of these Medicare
payments are closer to private payments levels for the same services, in
contrast to the difference in payments for anesthesia services. According
to a MedPAC-sponsored analysis, the average difference between Medicare
and private payments for medical services such as office visits and for
procedures provided in 2001 was 5 percent and 25 percent, respectively.^36

^33Physicians who sign Medicare participation agreements--referred to as
participating physicians--must accept assignment for all the covered
services they provide to Medicare beneficiaries. See 42 U.S.C.
S1395u(h)(l). Those who do not sign participation agreements--referred to
as nonparticipating physicians--can either opt to accept assignment on a
service-by-service basis or not at all. Only nonparticipating providers
have the option to balance bill. Physicians who balance bill currently
cannot charge Medicare beneficiaries more than 115 percent of 95 percent
of the Medicare approved amount, or 109.25 percent of the allowed Medicare
payment--an amount known as the limiting charge. See 42 U.S.C. S1395u(j).
Physicians may decide their participation status on an annual basis.

^34GAO analysis of CMS data, April 2004.

^35GAO analysis of Medicare BESS data, 2004.

Market Factors Influence Private Payments

Most private payers, like Medicare, determine payments for anesthesia
services using base units, time units, and anesthesia-specific conversion
factors. Unlike the Medicare program, however, private payers can set
their fees in response to market forces such as managed care prevalence
and the extent of competition among providers. For example, private
anesthesia conversion factors are generally negotiated between payers and
anesthesia practitioners. In addition, some private payers use different
methods to determine time units, such as rounding up fractional time units
to the next whole number or using 10-minute increments for each time unit,
which can result in higher anesthesia payments. When setting payment
rates, some private payers also allow higher payments for certain
patient-related factors such as extremes in age.

In our prior work we found that private payments for physician services,
excluding anesthesia and some other services, differed by about 100
percent between the lowest- and the highest-priced metropolitan areas and
were responsive to market forces, such as regional differences in the
extent of competition among hospitals and health maintenance
organizations' (HMOs) ability to leverage prices.^37 For example, we found
that areas with less competition and lower levels of HMO price leverage
had higher payments than areas with more competition and greater levels of
HMO price leverage. We have also reported that because private payers can
adjust their payment levels to account for market forces, their payment
levels vary more than Medicare payments across geographic areas.^38

^36Direct Research, LLC, Medicare Physician Payment Rates Compared to Rates
Paid by the Average Private Insurer, 1999 - 2001: A Study Conducted by
Direct Research, LLC for the Medicare Payment Advisory Commission, No.
03-6 (Washington, D.C.: MedPAC, August 2003).

^37GAO, Federal Employees Health Benefits Program: Competition and Other
Factors Linked to Wide Variation in Health Care Prices, [28]GAO-05-856
(Washington, D.C.: Aug. 15, 2005).

Average Medicare Payments for Anesthesia Services Provided by Anesthesiologists
Alone Ranged from 51 Percent to 77 Percent Lower than Average Private Payments

We found that average Medicare payments for a set of seven anesthesia
services provided by anesthesiologists alone were lower than average
private payments in 41 Medicare payment localities in 2004, and ranged, on
average, from 51 percent lower to 77 percent lower than private payments
(see fig. 2). For all 41 payment localities, Medicare payments were lower
than private payments by an average of 67 percent. In 2004, the average
Medicare payment for a set of seven anesthesia services was $216, and the
average private payment for the same set of anesthesia services was $658.

Figure 2: Distribution of Percent Difference in Medicare and Private
Payments for Seven Anesthesia Services Provided by Anesthesiologists Alone
across 41 Medicare Payment Localities, 2004

Medicare payments varied less than private payments across the 41 payment
localities. In 2004, average Medicare payments for the set of seven
anesthesia services ranged from $177 to $303 across the 41 payment
localities, a range of 71 percent. In contrast, average private payments
for the same set of seven anesthesia services in that same year ranged
from $472 to over $1,300 across these localities, a range of 177 percent.

^38GAO, Medicare Physician Fees: Geographic Adjustment Indices Are Valid
in Design, but Data and Methods Need Refinement, [29]GAO-05-119
(Washington, D.C.: Mar. 11, 2005).

Overall Supply of Anesthesiologists and CRNAs Combined Was Not Correlated with
Payment Differences for Anesthesia Services or Concentration of Medicare
Beneficiaries

In 2004, there was no correlation between the overall supply of anesthesia
practitioners--that is, the total number of both anesthesiologists and
CRNAs per 100,000 people--and either the difference between Medicare and
private payments for anesthesia services or the concentration of Medicare
beneficiaries in the Medicare payment localities included in our
analyses.^39 However, when we examined the supply of anesthesiologists and
CRNAs separately, we found correlations between practitioner supply and
payment differences and practitioner supply and beneficiary concentration.
Specifically, we found that in 2004, the supply of CRNAs tended to
decrease as the difference between Medicare and private payments for
anesthesia services increased in 41 Medicare payment localities. We also
found that in 2004, the supply of anesthesiologists tended to decrease as
the concentration of Medicare beneficiaries increased across 87 Medicare
payment localities, while the supply of CRNAs tended to increase as the
concentration of Medicare beneficiaries increased across these Medicare
payment localities.

Overall Supply of Anesthesia Practitioners Was Not Correlated with Payment
Differences for Anesthesia Services, While Supply of CRNAs Was Related

We found no correlation between the overall supply of anesthesia
practitioners per 100,000 people and the difference in Medicare and
private payments for anesthesia services across 41 of Medicare's payment
localities in 2004. The supply of anesthesia practitioners varied across
the 41 localities independent of the payment differences in these
localities and the payment differences varied independently of the supply
of anesthesia practitioners in the localities. When we considered
anesthesiologists and CRNAs separately, we found a relationship between
the supply of CRNAs and the payment differences for anesthesia services
across the 41 Medicare payment localities in 2004. Specifically, there
tended to be fewer CRNAs in the localities with the larger differences
between Medicare and private payments for anesthesia service. For example,
on average, there were about 11.5 CRNAs per 100,000 people in the
localities where private payments exceeded Medicare payments by about 59
percent, while there were fewer CRNAs--on average, about 7.5 per 100,000
people--in the localities where private payments exceeded Medicare
payments by about 73 percent. In contrast, we did not find an association
between the supply of anesthesiologists and the differences between
Medicare and private payments for anesthesia services across the same 41
localities.

^39The difference between Medicare and private payments for anesthesia
services is based on seven anesthesia services provided by
anesthesiologists alone in 41 Medicare payment localities in 2004. See
app. I for more details.

Overall Supply of Anesthesia Practitioners Was Not Correlated with Concentration
of Medicare Beneficiaries, While Supply of Anesthesiologists and CRNAs Was
Related

We found no correlation between the overall supply of anesthesia
practitioners and the concentration of Medicare beneficiaries across 87
Medicare payment localities in 2004. The overall supply of anesthesia
practitioners--the number of both anesthesiologists and CRNAs combined per
100,000 people--varied across the 87 localities independent of the number
of Medicare beneficiaries in these localities.

We found that the supply of anesthesiologists and the supply of CRNAs were
each correlated with the concentration of Medicare beneficiaries across 87
payment localities in 2004. However, we found the opposite relationship
between the concentration of Medicare beneficiaries and the supply of
anesthesiologists and the supply of CRNAs. We generally found fewer
anesthesiologists in localities with a greater concentration of Medicare
beneficiaries. For example, in 2004, in localities where on average 17
percent of the population was made up of Medicare beneficiaries, there
were 13 anesthesiologists per 100,000 people. For localities where, on
average, 11 percent of the population was made up of Medicare
beneficiaries, the supply of anesthesiologists was relatively higher at 16
per 100,000 people. In contrast, we generally found more CRNAs in
localities with higher concentrations of Medicare beneficiaries. For
example, in 2004, on average, there were 14 CRNAs per 100,000 people in
localities where the proportion of Medicare beneficiaries was 17 percent,
on average, but half that supply--7 CRNAs per 100,000 people--in
localities where 11 percent of the population was Medicare beneficiaries.
The larger supply of CRNAs in localities with greater concentrations of
Medicare beneficiaries appeared to offset the smaller anesthesiologist
supply in these localities so that, in total, there was no relationship
between the overall supply of anesthesia practitioners and the
concentration of Medicare beneficiaries across the 87 localities in 2004.

Compensation of Anesthesia Practitioners Was Reported to Compare Favorably with
Other Practitioners, and Anesthesiology Residencies and Nurse Anesthesia
Graduates Have Increased

For 2005, compensation for anesthesia practitioners was reported to
compare favorably to that of other physicians and nonphysician
practitioners, according to information from medical group practices from
across the country that responded to a survey of MGMA member
organizations. The 2005 median annual compensation for general
anesthesiologists--approximately $354,240--was over 10 percent higher than
the median annual compensation for specialists and over twice the
compensation for generalists.^40,41 When compared to other hospital-based
specialists, the MGMA-reported median annual compensation for general
anesthesiologists was higher than that for three categories of
pathologists and less than that for three categories of radiologists.^42
For example, the MGMA-reported median annual compensation for general
anesthesiologists was approximately 10 percent higher than the
MGMA-reported median annual compensation for anatomic and clinical
pathologists. MGMA data also showed that the median annual compensation
for pain management anesthesiologists and pediatric anesthesiologists
exceeded the median annual compensation for general anesthesiologists and
all categories of pathologists and radiologists. Similarly, for 2005, the
MGMA-reported median annual compensation for CRNAs--approximately
$131,400--was higher than the MGMA-reported median annual compensation for
other nonphysician practitioners such as nurse practitioners, nurse
midwives, and physician assistants. For example, the MGMA-reported median
annual compensation for CRNAs was over 40 percent higher than the
MGMA-reported median annual compensation for either nurse midwives or
nurse practitioners and over 35 percent higher than the MGMA-reported
median annual compensation for physician assistants.

^40MGMA, Physician Compensation and Production Survey: 2006 Report Based
on 2005 Data. The compensation information collected by MGMA is
self-reported by practitioners and includes information for employed and
contracted physician and nonphysician practitioners. To collect
compensation data, MGMA mailed surveys to over 12,000 of its member
organizations, which include medical group practices and other types of
organizations involved in physician practice management. The response rate
was approximately 16 percent. MGMA defines compensation to include the
amounts reported on a W-2, 1099, or K1 (for partnerships) plus all
voluntary salary reductions. MGMA instructs respondents to include the
following sources of compensation: salary, bonus and/or incentive
payments, research stipends, honoraria, and distribution of profits.

^41In the 2006 MGMA Physician Compensation and Production Survey, "general
anesthesiology" referred to anesthesiologists who did not subspecialize.
The "all generalist" specialty category included family practice (without
obstetrics), internal medicine, and pediatric/adolescent medicine. The
"all specialist" category included anesthesiology, cardiology,
dermatology, emergency medicine, gastroenterology, hematology/oncology,
neurology, obstetrics/gynecology, ophthalmology, orthopedic surgery,
otorhinolaryngology, psychiatry, pulmonary medicine, diagnostic radiology,
general surgery, and urology.

^42MGMA reported compensation for three categories each of
anesthesiologists (general, pain management, and pediatric), pathologists
(anatomic & clinical, anatomic, and clinical), and radiologists
(diagnostic invasive, diagnostic noninvasive, and nuclear medicine). MGMA
did not report compensation information for general pathologists or
general radiologists.

The number of anesthesiology residency positions offered through the NRMP
and the number of nurse anesthesia graduates have increased in recent
years. From 2000 to 2006 the number of residency positions available in
anesthesiology through the NRMP increased from 1,005 to 1,311, and the
number of these positions that were filled increased from 802 to 1,287. By
2006, the anesthesiology residency match rate--the percentage of positions
that have been filled--was 98 percent. This rate was higher than the rate
for pathologists, radiologists, and all physicians in 2006. In addition,
there has been a significant increase in the number of newly graduated
nurse anesthetists. According to the Council on Certification of Nurse
Anesthetists (CCNA), in 1999, nurse anesthesia programs produced 948 new
graduates; in 2005, that number had increased to 1,790, an overall
increase of 89 percent.

Agency and External Comments and Our Evaluation

We provided a draft of this report to CMS and to two external commenters
that represent anesthesia service practitioners; the AANA and the American
Society of Anesthesiologists (ASA). CMS's written comments are reprinted
in appendix II.

CMS stated that our study provides a good summary of information collected
from a variety of sources on anesthesia payments and the supply of
anesthesia practitioners but was concerned that our analysis of payment
differences for anesthesia services did not include four of the top five
Medicare anesthesia services in terms of Medicare payments. CMS noted that
private payer rates are not a criterion under the law to determine whether
Medicare physician payments are reasonable and stated that the Medicare
and private payment differences for anesthesia services do not necessarily
indicate a deficiency in Medicare payment rates. CMS also suggested that
the report should mention that the services of CRNAs in most rural
hospitals and critical access hospitals are paid on a reasonable cost
basis--not under the physician fee schedule--and that payments based on
reasonable costs could affect Medicare and private payment differences for
anesthesia services in these areas.

One of the external commenters generally agreed with our findings. The
other external commenter agreed with our finding regarding payment
differences for anesthesia services, but like CMS questioned our choice of
the anesthesia services included in our analysis of payment differences.
This external commenter was also concerned regarding our finding related
to supply of anesthesia practitioners and believed that we overestimated
the supply of anesthesiologists based on analysis of its own association
membership counts. Both external commenters stated that we should have
addressed aspects of payments to anesthesia service practitioners that
were not included in our analysis. Specifically, one external commenter
stated we should have examined the use of stipends by hospitals to augment
anesthesiologists' compensation. The other external commenter stated we
should have included analysis of Medicare and private anesthesia service
payments to CRNAs, including analysis of anesthesia services during which
CRNAs work with anesthesiologists or provide the services as the sole
anesthesia practitioner.

We carefully considered which anesthesia services to include in our
analysis of Medicare and private payment differences for anesthesia
services, but were not able to include all of the high-volume Medicare
anesthesia services. In order to calculate the difference between Medicare
and private payments for anesthesia services and include the maximum
number of localities in our analysis, it was essential to include
anesthesia services that were high volume for both Medicare and the
private sector. Some anesthesia services that were high volume for
Medicare beneficiaries, for example anesthesia for lens surgery, were not
as high volume for private patients and were not included for that reason.
We agree with CMS that differences between Medicare and private payments
for anesthesia services are not a statutory criterion for determining
Medicare payments for these services and added this clarification to our
report. We also clarified that Medicare payments for CRNA anesthesia
services provided in rural and critical access hospitals could be paid on
a reasonable cost basis and added a statement to the report stating this
fact. However, we did not determine the extent to which Medicare and
private payments to CRNAs practicing in rural and critical access
hospitals differed as this was beyond the scope of our study.

In response to the external commenter's concern regarding the accuracy of
our estimate of the supply of anesthesiologists, we believe the AMA data
that we used to calculate the supply of anesthesiologists represent the
most complete and accurate data source for analyzing physician supply, and
that the external commenter estimates of supply based on association
membership counts may underestimate supply because it is likely that some
anesthesiologists do not belong to the association. Additionally, we
checked our calculations regarding the supply of anesthesiologists and
verified that we had removed inactive and nonpracticing anesthesiologists
from our supply estimates. We did not include a discussion of stipends
paid by hospitals to anesthesia service practitioners. Stipends are
reported to be paid to a variety of specialists, including
anesthesiologists, for several reasons, including to compensate
specialists for treating a high proportion of Medicare beneficiaries,
24-hour coverage of trauma units, and to help cover costs associated with
treating uninsured patients. As our study focused on Medicare and private
payments for anesthesia services and overall compensation for anesthesia
practitioners, it was beyond the scope of our study to examine this issue
in further detail. We agree with the external commenter that it would have
been preferable to include payments for CRNA anesthesia services in our
analysis, but were not able to do this due to data limitations.

The external commenters provided us with technical comments and
clarifications, which we incorporated as appropriate.

As arranged with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this letter. We are sending copies of this report to
the Administrator of CMS and interested congressional committees. We will
also make copies available to others upon request. The report is available
at no charge on the GAO Web site at [30]http://www.gao.gov .

If you or your staffs have any questions, please contact me at (202)
512-7114 or [31][email protected] . Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Staff members that made major contributions to this report
are listed in appendix III.

Kathleen M. King
Director, Health Care

Appendix I: Scope and Methodology

This appendix describes in detail the data and methods we used to
calculate differences in Medicare and private anesthesia service payments,
anesthesia practitioner supply, and Medicare beneficiary concentration. It
also describes the correlation analyses we conducted to determine the
relationship between anesthesia practitioner supply measures, differences
in anesthesia service payments, and Medicare beneficiary concentration.
Finally, this appendix addresses data reliability issues and limitations
related to our studies.

Difference in Medicare and Private Payments for Anesthesia Services

To examine the extent to which Medicare payments for anesthesia services
were lower than private payments across Medicare payment localities in
2004,^1 we used anesthesia service claims data from two billing companies
that bill and track payments from private payers and Medicare and
calculated payments by payer for services provided by anesthesiologists
alone at the Medicare payment locality level. This provided us with
average Medicare and private payments for a set of anesthesia services. We
then calculated payment differences--that is, the percentage by which
Medicare payments were lower than private payments, calculated as the
difference between average private and Medicare payments as a percent of
average private payments--for each of the localities included in our
analysis.

To calculate the difference between Medicare and private payments for
anesthesia services, we used 2004 anesthesia service claims data from two
companies that bill private payers and Medicare on behalf of anesthesia
practitioners.^2 We obtained names of several billing companies from
interviews with industry experts who were knowledgeable about industry
billing practices. We chose to use anesthesia service claims data from
billing companies because such data contain claims from many different
insurers in an area. The two billing companies from which we obtained
claims data together provided billing services on behalf of over 10
percent of all anesthesiologists in the country in 2004. Although the
anesthesia service claims data from the two companies may not be
generalizeable to all anesthesia services provided by anesthesiologists,
billing company officials stated that their claims data were generally
representative of other companies that provided billing for anesthesia
services and that anesthesia practioner groups that did not use billing
services were not that different from groups that did use billing
services.

^1Medicare payments for anesthesia services are paid using a system of
"base" and "time" units. The relative complexity of an anesthesia service
is measured by base units; the more activities that are involved, the more
base units assigned by Medicare. The time spent performing an anesthesia
service is measured continuously from when the anesthesia practitioner
begins preparing the patient for services and ends when the patient may be
safely placed in postoperative care and is measured by 15-minute units of
time with portions of time units rounded to one decimal place. The sum of
the base and time units are converted into a dollar payment amount by
multiplying the sum by an anesthesia service-specific conversion factor,
which also accounts for regional differences in the cost of providing
services.

^2Anesthesia practitioners are likely to use billing companies because
they usually provide services in hospital settings and may not have their
own private offices or staff to perform billing functions, such as
submitting claims to insurers and collecting receivables from patients.

The billing companies provided us with claims data for anesthesia services
provided in 2004, including payment information for the 27
highest-expenditure anesthesia services paid for by Medicare in 2003,
which accounted for approximately 70 percent of Medicare anesthesia
service expenditures in 2003.^3 The specific information the billing
companies provided included data on the type of payer; the anesthesia
service code; payment modifiers that specified the type of anesthesia
practitioner involved; total minutes of time required to perform the
service; payments, including insurer and beneficiary payments; and the
Medicare payment locality in which the service was provided. Due to the
proprietary nature of the data and concerns about identification of
providers or beneficiaries, the billing companies could not provide
payment information at a smaller geographic level. Therefore, Medicare
payment localities were the smallest areas for which we could examine
payments for anesthesia services. Only claims for which fee-for-service
Medicare was the payer were included in our calculation of Medicare
payments. For our calculation of private payments for these services, we
included fee-for-service, preferred provider organization, and managed
care claims from all commercial payers. Average payments included payments
made by insurers as well as patient obligations such as deductibles and
coinsurance payments. Because our study compared Medicare and private
payments only, we excluded the billing companies' claims from other payers
of anesthesia services, such as Medicaid and workers' compensation funds.
We also excluded any claims for which we could not definitively identify
the payer.

^3The 27 highest Medicare expenditure anesthesia services were identified
from our analysis of the 2003 Medicare Part B Extract Summary System
(BESS) file.

Although both billing companies provided claims data, one company provided
information at the individual claims level while the other company
provided claims information summarized to the case level. For the
individual claims-level data, we excluded claims from the analysis if the
average anesthesia service payment was greater than or less than 3
standard deviations from the log of the average anesthesia service
payment, specific to each anesthesia service, Medicare payment locality,
and payer. We applied similar criteria to anesthesia service conversion
factors (which we calculated as the total payment for the service divided
by the sum of the base and time units associated with the service) in the
individual claims-level data. Because data from the other company were
summarized, we were not able to apply similar exclusion criteria. Instead,
prior to providing the claims data to us, the billing company excluded
claims if an individual Medicare or private anesthesia service payment was
less than 10 percent of the Medicare allowable payment for the locality in
which the service was provided or if the receivable was greater than
$50.^4,5 We excluded claims paid by Medicare from the data provided by
either billing company if the Medicare anesthesia conversion factor did
not match any of the Centers for Medicare & Medicaid Services' (CMS)
established conversion factors, based on the localities present in the
data. We examined descriptive statistics for both data sets after all
exclusions were applied and determined that it would be appropriate to
merge the two data sets to calculate payment differences.

After applying these and other exclusion criteria, we ranked the
anesthesia service codes in order of prevalence across the Medicare
payment localities represented in the billing companies' claims data.
Based on the rankings and prevalence across localities, we identified a
set of seven anesthesia services that were most prevalent and well
represented across the Medicare payment localities included in the claims
data. We balanced the need for maximizing the number of localities with
having a set of anesthesia services that were prevalent in all of the
localities chosen. In our final data set we retained billing company
claims data for all seven of these anesthesia services in 41 different
Medicare payment localities.^6 These seven anesthesia services were
services provided by anesthesiologists only. We did not have a sufficient
volume of claims for anesthesia services provided by certified registered
nurse anesthetists (CRNAs) alone to include data from CRNA-performed
services in our analysis. We also did not include data for anesthesia
services provided by anesthesiologists with the involvement of other
anesthesia practitioners because the billing data for these services from
the two billing companies were not consistent and we therefore determined
them to be not reliable.

^4The receivable was the difference between the insurer-specific allowable
and the received payment.

^5A receivable less than 10 percent of the Medicare allowable for the
locality or greater than $50 would indicate that the claim had not been
fully paid by the insurer or the patient.

Medicare and private payments were both weighted to account for the
relative national expenditures for each of the seven anesthesia services
by Medicare in 2003 (see table 1). For example, because anesthesia
services for intraperitoneal procedures in the upper abdomen including
laparoscopy accounted for approximately one-third of Medicare expenditures
for the seven selected codes combined, approximately one-third of the
overall average payment we calculated for each locality was based on
payments for this service. There were far fewer Medicare expenditures
associated with anesthesia for hernia repairs in the lower abdomen, not
otherwise specified and therefore payments for these services had a much
smaller weight in overall average payment calculations. Over 136,000
Medicare and private anesthesia service cases were included in our
calculation of payment differences.

^6The 41 payment localities included in the payment difference analysis
include 13 localities which are whole states, 18 urban and/or suburban
areas, and 10 additional statewide areas (not including already specified
urban and/or suburban areas). Nine of the localities are located in the
U.S. Census region of the West, while 8 are represented in the Midwest
region. The South and Northeast regions each had 12 localities.

Table 1: Description, Number of Cases, and Weights for Seven Anesthesia
Services included in Calculation of Anesthesia Service Payment Difference

                                              Number of cases Weight based on 
                                               in claims data        Medicare 
Anesthesia service description                         set    expenditures 
Anesthesia for intraperitoneal procedures                                  
in upper abdomen including laparoscopy;                                    
not otherwise specified                             27,447             .32 
Anesthesia for intraperitoneal procedures                                  
in lower abdomen including laparoscopy;                                    
not otherwise specified                             35,664             .22 
Anesthesia for procedures on the                                           
integumentary system on the extremities,                                   
anterior trunk and perineum, not otherwise                                 
specified                                           23,318             .12 
Anesthesia for transurethral procedures                                    
(including urethrocystoscopy); not                                         
otherwise specified                                 12,783             .09 
Anesthesia for open procedures on bones of                                 
lower leg, ankle, and foot; not otherwise                                  
specified                                           16,827             .09 
Anesthesia for all procedures on                                           
esophagus, thyroid, larynx, trachea, and                                   
lymphatic system of neck; not otherwise                                    
specified, age 1 year or older                       8,340             .09 
Anesthesia for hernia repairs in lower                                     
abdomen; not otherwise specified                    11,930             .07 
Total                                              136,309            1.00 

Sources: American Medical Association, Current Procedural Terminology, CPT
2003; GAO analysis of 2004 claims data from two anesthesia service billing
companies; and GAO analysis of BESS data, 2003.

Using the weighted average Medicare and private payments, we calculated
payment differences for each of the 41 Medicare payment localities
included in our analysis. We also calculated an overall average payment
difference inclusive of data from all 41 localities.

To examine a payment variable that was not influenced by variation in
time,^7 we examined the difference in conversion factors for Medicare and
private anesthesia services, using the seven services provided by
anesthesiologists in the 41 Medicare payment localities. The average
difference in conversion factors was 69 percent, an amount very similar to
the difference in Medicare and private payments. Therefore, we focused our
analyses on the difference in Medicare and private payments.

^7Because time units vary depending on the length of anesthesia time
associated with a surgical procedure, Medicare payment for the same
anesthesia service provided in two different surgeries will be different
if the associated anesthesia time is different. The conversion factor for
an anesthesia service, unlike the payment for an anesthesia service, is
not influenced by variation in the time required to provide the service.

Supply of Anesthesia Practitioners

To estimate anesthesia practitioner supply at the locality level, we used
data from the American Medical Association (AMA), the American Association
of Nurse Anesthetists (AANA), the U.S. Census Bureau, and CMS. Only active
anesthesiologists and CRNAs practicing in the 50 states and the District
of Columbia were included in our analysis.^8,9 We assigned anesthesia
practitioners and the number of total U.S. general population residents to
87 Medicare payment localities.^10,,1112 To determine supply per 100,000
people, we divided the number of anesthesia practitioners in each locality
by the total resident population in the same locality, multiplied by
100,000. (See table 2).

Table 2: Average and Range of Anesthesia Practitioner Supply per 100,000
People, 2004

Anesthesia practitioner supply per 100,000 people Average Minimum Maximum 
Anesthesiologist supply                             15.12    4.32   46.91 
CRNA supply                                         10.47    1.66   31.52 
Total anesthesia practitioner supply                25.59   12.47   52.15 

Source: GAO analysis of AMA, AANA, U.S. Census Bureau, and CMS data.

Note: N=87 Medicare payment localities.

^8Anesthesiologists were considered active if they were currently
practicing, not employed by the federal government, and involved in direct
patient care.

^9Anesthesiologists were identified in the AMA database if they listed
their major specialty as anesthesiology, pain management, critical care
anesthesiology, or pediatric anesthesiology.

^10Only 87 of CMS's 89 payment localities were included because our
analysis was restricted to the 50 states and the District of Columbia.
Therefore, the localities of Puerto Rico and the Virgin Islands were
excluded. Though Hawaii and Guam share a locality, Guam was also excluded
separately.

^11Only resident population data from the 50 states and the District of
Columbia were used in our analysis.

^12Observations without a reliable geographic locator were excluded.

Concentration of Medicare Beneficiaries

To estimate the concentration of Medicare beneficiaries at the locality
level, we used CMS and U.S. Census Bureau data. Using a geographic
crosswalk file, we assigned the number of beneficiaries enrolled in
Medicare and the number of total U.S. general population residents to
Medicare payment localities. We then computed the percentage of Medicare
beneficiaries in the general population to estimate the concentration of
Medicare beneficiaries in each Medicare payment locality. (See table 3).

Table 3: Average and Range of Medicare Beneficiary Concentration, 2004

Variable                                     Average Minimum Maximum 
Medicare beneficiary concentration (percent)      14       8      20 

Source: GAO analysis of U.S. Census Bureau and CMS data.

Note: N=87 Medicare payment localities.

Correlation Analysis

To measure the relationship between the supply of anesthesia
practitioners, the difference in average Medicare and private payments,
and the concentration of Medicare beneficiaries at the locality level, we
performed correlation analyses. A correlation coefficient measures the
strength and direction of linear association between two variables without
controlling for the effects of other characteristics as in a multivariate
analysis.^13

We calculated correlations between three measures of anesthesia
practitioner supply--anesthesiologists, CRNAs, and total
(anesthesiologists and CRNAs combined)--and differences in payments in 41
Medicare payment localities. We also calculated correlations between the
three supply measures and the concentration of Medicare beneficiaries in
87 Medicare payment localities. (See tables 4 and 5 below.)

^13Correlation coefficients may be negative (as one variable increases,
the other decreases) or positive (as one variable increases, the other
variable also increases). They range from -1.0, indicating a perfectly
negative association, to +1.0, indicating a perfectly positive
association. A correlation coefficient of 0 indicates no association.

Table 4: Correlation Coefficients between Supply of Anesthesia
Practitioners and Average Medicare and Private Payment Differences, by
Medicare Payment Locality, 2004

                                       Payment differences 
Anesthesia practitioner supply Correlation coefficients 
Anesthesiologist                                   0.16 
CRNA                                            -0.35** 
Total anesthesia practitioner                     -0.09 

Sources: GAO analysis of anesthesia service claims data from two billing
companies, AMA, AANA, U.S. Census Bureau, and CMS.

Notes: N=41 Medicare payment localities. ** = statistically significant at
the 5 percent level.

Table 5: Correlation Coefficients between Supply of Anesthesia
Practitioners and Medicare Beneficiary Concentration, by Medicare Payment
Locality, 2004

                                  Medicare beneficiary concentration 
Anesthesia practitioner supply           Correlation coefficients 
Anesthesiologist                                           -0.21* 
CRNA                                                      0.40*** 
Total anesthesia practitioner                                0.14 

Sources: GAO analysis of AMA, AANA, U.S. Census Bureau, and CMS.

Notes: N=87 Medicare payment localities.

* = statistically significant at the 10 percent level.

*** = statistically significant at the 1 percent level.

Data Reliability and Study Limitations

We used a variety of data sources in our analysis, including anesthesia
service claims data from two billing companies, the AMA, the AANA, the
U.S. Census Bureau, CMS, the National Resident Matching Program (NRMP),
and the Medical Group Management Association (MGMA). We tested the
internal consistency and reliability of all our data sources and
determined they were adequate for our purposes. The files containing the
billing company data, which were used by the two companies to record bills
and payments, were subjected to various internal controls, including spot
checks, batch totals, and balancing controls as reported by the two
companies. Although we did not review these internal controls, we did
assess the reliability of the billing company data. We conducted extensive
interviews with representatives from both companies to gain an
understanding of the completeness and accuracy of the data the companies
provided. We also reviewed all information provided to us concerning the
data, including data dictionaries and file layouts. Additionally, we
examined the data for errors, missing values, and values outside of
expected range and computed payment differences from each company's data
separately and found them to be comparable. Finally, we determined that
our calculation of anesthesia service payment differences was comparable
with the results of a MedPAC-sponsored study. We also assessed the
reliability of median compensation information reported by MGMA. Although
multiple compensation surveys are available, we chose to use MGMA as our
data source because it has been used as a source in a number of
peer-reviewed articles, and it contains comprehensive information on
various aspects of physician compensation. Through interviews with MGMA
officials, we learned of the steps taken by MGMA to ensure the reliability
of the data the association published on median compensation, including
comparisons with other industry studies on physician and nonphysician
compensation and year-to-year analyses of respondents.

We identified several potential limitations of our analyses. First, while
we used payment data from 41 different Medicare payment localities, we do
not know if the payment data are representative of all 89 of Medicare's
payment localities. Second, we did not have sufficient payment information
to calculate payment differences for anesthesia services provided by
anesthesiologists working with other anesthesia practitioners or
anesthesia services provided solely by CRNAs. As a result, we do not know
if payment differences for services provided in these ways would have been
different than payment differences for anesthesia services provided by
anesthesiologists alone. Third, we limited our analyses to determining
whether the supply of anesthesia practitioners was linearly associated
with payment differences or Medicare beneficiary concentration. However,
practitioners' decisions on where to locate could be influenced by many
other factors not included in our analyses. We also identified potential
limitations with MGMA's compensation data. The data were based on a survey
of MGMA member organizations which are reported to overrepresent large
medical groups. In addition, the MGMA survey response rate of 16 percent
raises the possibility that their compensation data may not be
representative of the compensation of all physician and nonphysician
practitioners. We performed our work from September 2004 through May 2007
in accordance with generally accepted government auditing standards.

Appendix II: Comments from the Centers for Medicare & Medicaid Services

Appendix III: GAO Contacts and Staff Acknowledgments

GAO Contacts

Kathleen M. King, (202) 512-7114 or [32][email protected]

Acknowledgments

In addition to the contact named above, Christine Brudevold, Assistant
Director; Stella Chiang; Krister Friday; Jawaria Gilani; and Ba Lin made
key contributions to this report.

Related GAO Products

Medicare Physician Services: Use of Services Increasing Nationwide and
Relatively Few Beneficiaries Report Major Access Problems. [33]GAO-06-704
. Washington, D.C.: July 21, 2006.

Federal Employees Health Benefits Program: Competition and Other Factors
Linked to Wide Variation in Health Care Prices. [34]GAO-05-856 .
Washington, D.C.: August 15, 2005.

Medicare Physician Fees: Geographic Adjustment Indices Are Valid in
Design, but Data and Methods Need Refinement. [35]GAO-05-119 . Washington,
D.C.: March 11, 2005.

Physician Workforce: Physician Supply Increased in Metropolitan and
Nonmetropolitan Areas but Geographic Disparities Persisted. [36]GAO-04-124
. Washington, D.C.: October 31, 2003.

(290414)

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Highlights of [44]GAO-07-463 , a report to the Subcommittee on Health,
Committee on Ways and Means, House of Representatives

July 2007

MEDICARE PHYSICIAN PAYMENTS

Medicare and Private Payment Differences for Anesthesia Services

In 2005 Medicare paid over $1.4 billion for anesthesia services. These
services are generally provided by anesthesia practitioners, such as
anesthesiologists and certified registered nurse anesthetists (CRNAs). A
government-sponsored study found that Medicare payments for anesthesia
services are lower than private payments. Congress is concerned that this
difference may create regional discrepancies in the supply of anesthesia
practitioners, and asked GAO to explore this issue.

GAO examined (1) the extent to which Medicare payments for anesthesia
services were lower than private payments across Medicare payment
localities in 2004, (2) whether the supply of anesthesia practitioners
across Medicare payment localities in 2004 was related to the differences
between Medicare and private payments for anesthesia services or the
concentration of Medicare beneficiaries, and (3) compensation levels for
anesthesia practitioners in 2005 and trends in graduate training. GAO used
claims data from two anesthesia service billing companies that bill
private insurance payers and Medicare to calculate payments by payer for
seven anesthesia services in 41 Medicare payment localities. GAO also used
data from the Centers for Medicare & Medicaid Services (CMS) and other
sources to determine practitioner supply and Medicare beneficiary
concentration in 87 Medicare payment localities.

GAO found that in 2004 average Medicare payments for a set of seven
anesthesia services provided by anesthesiologists alone were 67 percent
lower than average private insurance payments in 41 Medicare payment
localities--geographic areas established by CMS to account for geographic
variations in the relative costs of providing physician services.

In 2004, there was no correlation between the overall supply of anesthesia
practitioners--that is, the total number of both anesthesiologists and
CRNAs per 100,000 people--and either the difference between Medicare and
private insurance payments for anesthesia services or the concentration of
Medicare beneficiaries in the Medicare payment localities included in
GAO's analyses. However, when GAO examined the supply of anesthesiologists
and CRNAs separately, GAO found correlations between practitioner supply
and payment differences and practitioner supply and beneficiary
concentration. Specifically, GAO found that in 2004, the supply of CRNAs
tended to decrease as the difference between Medicare and private
insurance payments for anesthesia services increased in 41 Medicare
payment localities. GAO also found that in 2004 the supply of
anesthesiologists tended to decrease as the concentration of Medicare
beneficiaries increased across 87 Medicare payment localities, while the
supply of CRNAs tended to increase as the concentration of Medicare
beneficiaries increased across these Medicare payment localities.

For 2005, compensation for anesthesia practitioners was reported to
compare favorably with other practitioners, according to information from
medical group practices from across the country that responded to a survey
of Medical Group Management Association (MGMA) member organizations. The
2005 median annual compensation for general
anesthesiologists--approximately $354,240--was over 10 percent higher than
the median annual compensation for specialists and over twice the
compensation for generalists. For 2005, MGMA-reported median annual
compensation for CRNAs-approximately $131,400--was over 40 percent higher
than the MGMA-reported median annual compensation for either nurse
midwives or nurse practitioners and over 35 percent higher than the
MGMA-reported median annual compensation for physician assistants. The
number of anesthesiology residency positions offered through the National
Resident Matching Program and the number of nurse anesthesia graduates
have increased in recent years.

CMS stated that the study provided a good summary of information collected
from a variety of sources on anesthesia payments and the supply of
anesthesia practitioners.

References

Visible links
  25. http://www.gao.gov/cgi-bin/getrpt?GAO-05-119
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-06-704
  27. http://www.gao.gov/cgi-bin/getrpt?GAO-04-124
  28. http://www.gao.gov/cgi-bin/getrpt?GAO-05-856
  29. http://www.gao.gov/cgi-bin/getrpt?GAO-05-119
  30. http://www.gao.gov/
  31. mailto:[email protected]
  32. mailto:[email protected]
  33. http://www.gao.gov/cgi-bin/getrpt?GAO-06-704
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-05-856
  35. http://www.gao.gov/cgi-bin/getrpt?GAO-05-119
  36. http://www.gao.gov/cgi-bin/getrpt?GAO-04-124
  37. http://www.gao.gov/
  38. http://www.gao.gov/
  39. http://www.gao.gov/fraudnet/fraudnet.htm
  40. mailto:[email protected]
  41. mailto:[email protected]
  42. mailto:[email protected]
  43. http://www.gao.gov/cgi-bin/getrpt?GAO-07-463
  44. http://www.gao.gov/cgi-bin/getrpt?GAO-07-463
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