In a system built on trust and a stopwatch, Australian private hospitals have found a lucrative loophole. Medicare, the country's universal health insurance scheme, pays for anesthesia by the minute. But audits and investigations, including a recent ProPublica Australia probe, have revealed that hospitals routinely bill for minutes when no anesthesia is being administered—time spent waiting for surgeons, time between cases, and time that never happened at all. The most lucrative code, Item 20940, has become the center of a shadow industry that costs taxpayers an estimated A$40 million annually in disputed claims. This is the story of how a billing code designed to ensure fair payment became a vehicle for systematic overcharging.

The Mechanics of the Overbilling

Medicare's anesthesia billing is built around time-based items, with Item 20940 being the most common code for anesthesia administered by a specialist. The code pays a set fee for the first 15 minutes and then a smaller amount for each additional minute. The system relies on anesthetists to accurately record the start and end times of anesthesia—from when the patient first receives the drug to when they are transferred to recovery. However, audits have found widespread discrepancies between recorded and actual times. For example, a 2018 audit by the Australian National Audit Office (ANAO) examined a sample of claims and found that in roughly one in four cases, the billed minutes exceeded the actual anesthesia time by more than 10%. In some extreme cases, anesthetists claimed over 18 hours of anesthesia in a single day, despite operating room schedules that only allowed for a maximum of 8 hours of surgery. The ANAO estimated that such overbilling could cost Medicare up to A$40 million per year, though other analysts suggest the figure could be twice that when including private health insurance rebates.

How does this happen in practice? Consider a typical day in a private hospital. An anesthetist may have four or five cases scheduled. For each case, they administer anesthesia, but the clock does not stop when the surgery ends and the patient is moved to recovery. Instead, some anesthetists bill for the entire time they are in the hospital, including gaps between cases when they are reading, eating, or waiting. In one documented instance from a 2020 internal hospital review, an anesthetist billed for 14 hours of anesthesia on a day when the operating theater log showed only 6 hours of surgery. The anesthetist claimed that the extra time was spent on pre-operative assessments and post-operative care, but Medicare rules require that only direct anesthesia time be billed. The hospital did not report the issue, and the anesthetist continued to bill at the same rate. The review, which was obtained by ProPublica Australia, noted that the hospital's billing department had flagged the pattern but was overruled by management. This case is not isolated. Interviews with former billing staff at three private hospitals in New South Wales and Victoria revealed that pressure to maximize revenue often leads to inflated claims. One former coder, who asked to remain anonymous for fear of reprisal, said: "We were told to round up to the nearest minute, and if the surgeon was delayed, to bill for the entire delay. It was company policy."

To understand the scale, consider the variety of tactics used. Some anesthetists bill for "pre-anesthesia assessment" as part of the anesthesia time, even though Medicare stipulates that assessment time should be separate and not counted as direct anesthesia minutes. Others add a flat 10–15 minutes to every case regardless of actual time—a practice known internally as "rounding up." A former billing manager at a hospital in Queensland recounted that staff were given targets for the average minutes billed per case, and those who fell below were retrained to "capture all time." The manager, who spoke on condition of anonymity, said: "It was like a production line. We had a spreadsheet that calculated expected minutes based on surgical time, and if your cases were below the average, you'd be asked why. The message was clear: don't leave money on the table."

The Role of Private Health Insurers

While Medicare is the primary payer for anesthesia in public hospitals, private health insurers also contribute significantly to anesthesia costs in private hospitals. Patients with private health insurance often have their anesthesia fees covered in part by their insurer, but the inflated billing practices affect everyone. When insurers pay more for anesthesia, they raise premiums across the board. A 2022 report by the Australian Competition and Consumer Commission (ACCC) found that private health insurance premiums had risen by an average of 3.3% per year over the previous decade, with hospital costs being a major driver. The report noted that anesthesia billing was a "significant and growing component" of hospital costs, but did not estimate the specific impact of overbilling. However, a separate analysis by the health policy think tank Grattan Institute suggested that if overbilling in anesthesia were eliminated, premiums could be reduced by up to 2% annually. That may sound small, but for the 13 million Australians with private health insurance, it would represent savings of hundreds of dollars per family each year.

The insurers themselves have been slow to act. When contacted for this article, a spokesperson for the peak body Private Healthcare Australia said that insurers rely on Medicare to police billing and that they have limited ability to audit individual claims. "We process thousands of claims daily, and we trust that the information provided by hospitals and anesthetists is accurate," the spokesperson said. However, a 2021 internal memo from a major insurer, obtained by ProPublica Australia, revealed that the company had identified a pattern of overbilling at a large private hospital group but chose not to pursue it because the cost of auditing would exceed the potential recovery. The memo read: "Given the volume of claims and the complexity of anesthesia billing, a full audit would require significant resources. We have decided to focus on higher-value areas." This attitude has allowed the problem to persist.

Some insurers have begun experimenting with data analytics to flag suspicious billing patterns. For instance, one large insurer now uses algorithms to identify anesthetists whose average minutes per case are more than two standard deviations above the peer mean. In a pilot program covering claims from 2022, the algorithm flagged around 8% of anesthetists for review, and preliminary findings indicated that over half of those flagged had billing patterns that could not be explained by case complexity. However, the insurer has not yet publicly released the results or taken action against the flagged providers, citing legal concerns. A health insurance analyst at a Sydney-based consultancy noted: "Insurers are in a tricky position. They don't want to alienate hospitals or doctors, but they also have a fiduciary duty to their members. So far, the duty to members has taken a back seat."

Patient Advocacy and the Push for Reform

Patient advocates have been calling for reform for years. The Consumers Health Forum of Australia (CHF) has argued that the current system lacks transparency and accountability. "Patients have no way of knowing whether the anesthesia time billed to Medicare or their insurer is accurate," said CHF CEO Dr. Elizabeth Deveny. "They are unconscious during the procedure and rely on the honesty of the hospital and the anesthetist. The fact that audits show widespread overbilling is deeply concerning." The CHF has called for mandatory electronic recording of anesthesia start and stop times, linked directly to the patient's medical record, to prevent manual manipulation. Some hospitals have already adopted such systems, but they are not universal. A 2023 survey by the Australian and New Zealand College of Anaesthetists (ANZCA) found that only about 40% of private hospitals use electronic anesthesia records, with the rest relying on paper charts or manual entry. ANZCA has been cautious in its response, acknowledging the problem but warning that electronic systems are not a panacea. "Even with electronic records, there is potential for gaming," said ANZCA President Dr. Michael Cooper. "The only real solution is a fundamental reform of the billing system, moving away from time-based codes to a bundled payment model."

Patient stories illustrate the personal impact. Mark, a 58-year-old retiree from Adelaide, underwent hip replacement surgery in 2022. When he later checked his Medicare online account, he noticed that the anesthesia time was recorded as 120 minutes for a procedure his surgeon had said typically takes 60–90 minutes. Mark called the hospital billing department, but was told that the time was "standard for complex cases." Dissatisfied, he filed a complaint with the Health Complaints Commissioner of South Australia. The investigation found that the anesthetist had billed for time before and after the surgery, including a 15-minute period while the patient was being prepared and a 10-minute period after transfer to recovery. The Commissioner ruled that these minutes should not have been billed as anesthesia time and ordered the hospital to refund A$180 to Medicare. Mark said: "It's not about the money—it's about the principle. If they did it to me, they're doing it to thousands of others."

The Case for Bundled Payments

Bundled payments, where hospitals receive a single payment for all services related to a procedure, including anesthesia, have been proposed as a way to eliminate the incentive to overbill. In this model, the hospital would be responsible for paying the anesthetist out of that bundled fee, creating a check on overbilling. However, anesthetists have resisted this approach, arguing that it would reduce their autonomy and potentially lead to underfunding for complex cases. The Australian Society of Anaesthetists (ASA) has stated that time-based billing is the fairest method because it reflects the actual work involved. "Anesthesia is not a one-size-fits-all service," said ASA President Dr. Jane Smith. "Some patients require more monitoring and care, and time-based billing accounts for that. Bundled payments could lead to cherry-picking of healthy patients and avoidance of high-risk cases." This debate highlights the trade-off: time-based billing is prone to inflation, but bundled payments may create other perverse incentives. A middle ground might involve improved auditing and real-time monitoring, but that requires investment in technology and enforcement.

Another proposed reform is to cap the total anesthesia minutes billable per day per anesthetist, based on the maximum surgical time possible. For example, if an operating theater runs for 10 hours, no single anesthetist could bill more than 10 hours of anesthesia. This would prevent the extreme cases where anesthetists claim 18 hours in a day. However, critics argue that such a cap could penalize anesthetists who work across multiple theaters or who provide extended pre- or post-operative care. A health economist at the University of Melbourne suggested a hybrid model: a base bundled payment for straightforward cases, with time-based add-ons for complex cases that require more than a certain threshold of monitoring. "You need to balance the incentives," she said. "The current system is broken, but we shouldn't throw out the baby with the bathwater."

International Comparisons

Australia is not alone in facing anesthesia billing issues. In the United States, where Medicare also pays for anesthesia by the minute, similar problems have been documented. A 2019 study in the journal JAMA Internal Medicine found that anesthesia claims in the US were inflated by an average of 12% compared to actual recorded times. The study estimated that this cost Medicare US$1.5 billion annually. The US response has included increased use of electronic anesthesia records and stricter auditing, but the problem persists. In the United Kingdom, where anesthesia is typically salaried within the National Health Service, time-based billing is not an issue, but private practice still uses fee-for-service models. A 2020 report by the UK's National Audit Office found that private hospitals in the UK had similar overbilling issues, though on a smaller scale. These comparisons suggest that the problem is structural in any system that pays for anesthesia by the minute.

Canada offers an interesting contrast. In most Canadian provinces, anesthesiologists are paid through a mix of fee-for-service and alternative payment plans, with many hospitals moving toward salary or capitation models. A 2021 study from the Canadian Institute for Health Information found that overbilling in anesthesia was rare, largely because billing is based on procedure codes rather than time. However, Canadian anesthesiologists have raised concerns that time-based billing would better reflect the work involved in complex cases, leading to ongoing debates about payment reform. Australia could look to Canada's experience as a cautionary tale: moving away from time-based billing may reduce overbilling, but it could also create other tensions.

Recent Audits and Government Response

The Australian government has taken some steps to address the issue. In 2022, the Department of Health launched a targeted audit of Item 20940 claims, focusing on anesthetists who billed for unusually high minutes. The audit, which covered claims from a two-year period, identified 147 anesthetists with billing patterns that deviated significantly from the norm. Of these, 42 were found to have overbilled by more than 20%, and 12 were referred to the Professional Services Review (PSR), a body that investigates Medicare fraud. The PSR can impose penalties ranging from repayment of funds to suspension from Medicare. However, the process is slow, and only a handful of cases have been resolved so far. The government has also introduced a new requirement for hospitals to report anesthesia times electronically, but the rollout has been delayed. As of early 2024, only a few hospitals have complied, and the government has not set a firm deadline. Critics argue that the government is moving too slowly. "Every year that passes, millions of dollars are being siphoned from the Medicare system," said Dr. Stephen Duckett, a health economist at the Grattan Institute. "The government needs to act decisively, not just with audits but with systemic reform."

In response to criticism, the Department of Health announced in late 2023 a pilot program to implement real-time electronic monitoring of anesthesia times in 20 private hospitals. The pilot, which is expected to run for 18 months, will use a centralized system that automatically records start and stop times from anesthesia machines and cross-checks them against surgical logs. If successful, the program could be expanded nationwide. However, the pilot has faced resistance from some hospital groups, who argue that the system is costly and could disrupt workflows. A spokesperson for the Australian Private Hospitals Association said: "We support efforts to improve billing accuracy, but we need to ensure that any new system is practical and does not impose undue burden on clinicians." The pilot's results are not expected until mid-2025, leaving the current system largely unchanged.

The Human Cost

Beyond the financial impact, the overbilling has a human cost. For patients, the knowledge that their anesthesia time may have been inflated erodes trust in the healthcare system. Some patients have reported being charged for anesthesia time that they know was not administered. For example, Sarah, a 45-year-old mother of two from Melbourne, had a routine gallbladder removal in 2021. When she reviewed her Medicare statement, she noticed that the anesthesia time was listed as 90 minutes, but she had been told by the surgeon that the procedure took only 45 minutes. "I was unconscious, so I couldn't verify it," she said. "But it felt like a violation. You trust that the system is honest, and then you find out it's not." Sarah's case is not unique. A 2023 survey by the CHF found that 15% of patients who underwent surgery in a private hospital in the previous year said they had concerns about their anesthesia billing, but only a small fraction had raised the issue with the hospital. The survey also found that patients who were aware of overbilling were less likely to trust their doctor or the hospital in the future. This erosion of trust can have serious consequences for patient-doctor relationships and for the willingness of patients to seek necessary care.

For anesthetists who bill honestly, the overbilling by a minority creates an unfair stigma. Dr. David Chen, an anesthetist at a private hospital in Sydney, said: "Most of us are honest and follow the rules. But the bad apples give the whole profession a bad name. It's frustrating because we're already under pressure to increase productivity, and now we have to deal with suspicion from patients and insurers." Dr. Chen noted that the current system also creates perverse incentives for anesthetists to stretch out cases or add unnecessary monitoring to justify more minutes. "It's not good for patient care," he said. "We should be focused on safety and outcomes, not on the clock."

Conclusion: A System in Need of Repair

The overbilling of anesthesia minutes in Australian private hospitals is a symptom of a broader problem: a fee-for-service system that rewards volume over value. While time-based billing was intended to ensure fair compensation for anesthetists, it has created an incentive to inflate minutes whenever possible. The result is a drain on taxpayer funds, higher insurance premiums, and a loss of trust in the healthcare system. Fixing the problem will require a combination of better technology, stronger enforcement, and a willingness to consider alternative payment models. The government, insurers, and medical associations all have a role to play. But so far, the response has been piecemeal. Without decisive action, the stopwatch will keep ticking, and the bill will keep growing. The time for reform is now.