What Reimbursement Cuts Mean

The Deficit Reduction Act of 2005 (DRA) slashed reimbursement for diagnostic imaging centers by placing a cap on technical-component payments from Medicare for non-hospital imaging services beginning in January 2007. With the 2010 Medicare Physician Fee Schedule (MPFS) final rule from the Centers for Medicare & Medicaid (CMS) now in effect, radiology specialties and rural practitioners may encounter a challenge for advanced imaging access if the proposed final rule is implemented.

The 2010 MPFS final rule also resulted in the change of the equipment utilization rate for imaging systems priced at more than $1 million, from 50 percent to 90 percent. The equipment utilization rate is set to roll out over a four-year transitional period with a “25/75” ratio set for 2010 to adjust to the new practice expense values. However, the equipment utilization rate is (as of press time) up for debate in the House of Representatives and U.S. Senate as part of the overall healthcare reform bills, yet the Medicare Payment Advisory Committee (MedPAC) supports CMS’ proposal to adopt the 90 percent utilization rate.

Additionally, CMS is finalizing its proposal to use the Physician Practice Information Survey (PPIS), a study led by the American Medical Association (AMA) and conducted in 2007 and 2008, which will change the practice per hour (PE/HR) for radiology from the current $204 to $134.84—a drop of 34 percent in Medicare’s practice expense formula. The practice expense, much like equipment utilization rates, is scheduled to be phased in over the course of four years with 75 percent of current practice expense data and 25 percent of new data to set the practice expense values for 2010.

Survival Tactics
The passage of the DRA, according to a survey published in July in the Journal of the American College of Radiology (JACR), resulted in layoffs and postponed plans for equipment acquisition. Based on a survey of 601 radiologists, James W. Moser, PhD, of ACR et al found that, on average, technical-component payment reductions were 18.5 percent and varied by imaging modality, with up to 34 percent for MRI.

Alan Kaye, MD, diagnostic radiology practitioner across Connecticut and president of Advanced Radiology Consultants, a practice with 21 radiologists and eight outpatient sites, is just one radiology group to employ tactics to avoid the effects of previous legislation.

Using the practice’s profit figure before DRA took effect in 2006, Kaye and his colleagues projected revenue reductions from DRA for 2007. By cutting personnel, more aggressively negotiating contracts with private payors, outsourcing billing and using an aggressive marketing approach, Kaye says his practice was able to mitigate the DRA reductions by about 40 percent.

“By marketing ourselves more aggressively, we probably took market share from competitors,” says Kaye. “Additionally, we cut back on services like nuclear medicine by decreasing hours of operations and freezing upgrades of equipment.”

Survivalist approaches such as Kaye’s are likely to become more par for the course for provider-based and physician-owned radiology departments in response to the CMS’ MPFS rule. Bibb Allen, MD, chairman of the ACR Economics Commission and a radiologist at Trinity Medical Center in Birmingham, Ala., says the DRA, the utilization assumption rates and the practice expense changes that occur as a result of the Physician Practice Information Survey don’t affect hospital-owned facilities.

“Hospitals are paid under the Hospital Outpatient Prospective Payment System (HOPPS),” says Allen, “so the resulting regulations don’t affect hospitals and hospitals’ outpatient departments or facilities. But, as far as provider-based and physician-owned departments, we anticipate, based on a Radiology Business Management Association (RBMA) survey, that as reimbursement cuts increase, we’ll see an increasing proportion of physician-owned practices opt to not buy additional equipment, [and] not to upgrade their current equipment.”

Hugh Zettel, director of strategic reimbursement at GE Healthcare, echoes Allen’s observations. “The DRA has been a large catalyst of change since its 2006 implementation,” Zettel says. “After two years of data, we’ve seen a drop-off of equipment sales and orders across the industry. With that slowdown, the recession itself has made it difficult for a lot of our customers to make investments in capital equipment.”

Arbitrary standard
Although the utilization rate was released in October 2009, discussions for equipment utilization rates reach at least as far back as 2006. In May 2006, Chicago-based social science research firm NORC submitted a survey of imaging centers’ MRI and CT usage rates to MedPAC. Despite only surveying six U.S. markets for 15 days in February 2005 with a calculated overall response rate of 71.9 percent, NORC concluded that the utilization of imaging services has increased rapidly in the Medicare population. Further, the NORC survey concluded that the assumed 50 percent utilization rate (in 2006) no longer held and equipment was being used a greater proportion of the time.

Additionally, the NORC survey was used by MedPAC to support its recommendation to raise the equipment utilization component on imaging from 50 to 90 percent. Kaye was one of the recipients of the NORC survey—which he says he didn’t fill out because it was unclear which data the survey was seeking.

“The denominator was unclear,” Kaye says. “I was unclear if I was supposed to answer according to an eight-hour day or a 24-hour day.”

Kaye, however, is clear about one aspect of imaging utilization rates. “A 90 percent utilization rate is untenable for most practices,” he says. “If you operate at a 90 percent utilization rate, you’re not able to handle urgent cases. For a rural practice, it’s very hard to keep a scanner running for that length of time.”

For example, Geoffrey Smith, MD, president of Casper Medical Imaging Radiology Group in Casper, Wyo., a practice with six radiologists primarily serving the Casper area, says that his CT utilization rate is about 50 percent, scanning six to 12 patients for about four to six hours during a workday. “For CMS to say that our utilization is 90 percent has nothing to do with the reality of where I’m working. This is just an arbitrary way for them to control expense and the methodology is flawed,” states Smith.

The Radiology Business Management Association’s July 2009 imaging equipment utilization rates survey concluded that their findings are more consistent with CMS’ current 50 percent equipment utilization assumption rate. Additionally, RBMA’s results suggest a significant difference in equipment utilization between rural and non-rural providers. According to the report, the means for Medicare-based utilization rates were 56 percent for non-rural and 48 percent for rural providers.

Conflict of interest
“What Congress is doing is guaranteeing that utilization is about to increase,” says Smith. “This has nothing to do with medical care; just economics.” Smith believes that the high utilization assumption rates are going to adversely impact the practitioners that are economically disconnected from those ordering imaging tests, like independent imaging centers and radiology groups. “Instead, the pending changes will ultimately benefit those who order imaging performed by their own imaging equipment. The economic motivations to both order and provide the tests on their own patients will be inescapable,” says Smith.

“Utilization assumption rates aren’t going to change unless patient population demographics change or there’s a new indication to do a test; so economically independent practitioners who are witnessing a certain instance of disease are going to refer at the same rate regardless what the reimbursement rate is,” says Smith. “However, if a medical group refers patients to its own imaging equipment, and if its pay is eroded due to practice expense cuts, it is possible to shift cost by raising commercial rates or volume of the imaging exams that you are ordering.”

It might not happen consciously, but it will happen, says Smith.

The Ethics in Patient Referrals Act, long known as the Stark law, has a stipulation called the in-office ancillary provision that allows group practices to provide most “designated health services,” including imaging, in their own offices.

Some studies suggest that imaging centers that own their equipment are able and do order more tests than imaging centers that don’t. In a June 2009 report, MedPAC found a higher proportion of episodes in which a self-referring physician received at least one imaging service than episodes with no self-referring physician and that instances with a self-referring physician had higher ratios of observed-to-expected imaging spending than episodes with no self-referring physician. This data suggest that self-referring physicians order more imaging tests than physicians who do not own their own imaging equipment.

“Self-referral is so rampant that it’s hard to be an independent provider anymore,” says Allen. “I think that economically motivated utilization is always inappropriate and while all self-referrals are not always inappropriate, I think that environment where there is potential conflict of interest certainly weighs in on increasing the utilization of imaging.”

While facility survival may not depend on self-referring, the physicians interviewed for this article suggested the frequency of that practice will certainly increase in mitigation of the financial burden caused by the MPFS. And for those facilities that can’t curb financial offsets through gains in self-referrals, different routes will have to be taken to adapt to the new revenues and regulations. “From a radiology perspective,” says Kaye, “CMS and Congress are attacking the utilization problem in a counter-productive way where they will stifle investment, research and development and potentially force closure of a lot of centers, impairing access—especially in rural areas.”

Smith says some providers might eventually opt out of Medicare if reimbursement rates get cut enough. “It may not be a huge percentage, but there will be some who stop taking Medicare patients,” says Smith. “The 2010 CMS final rule further limits physician reimbursement. The impact will be further stress upon commercial healthcare plans struggling to support themselves in the face of providers looking to fee-for-service as a pathway to offset CMS cuts.”