HCFA tightens control on reimbursements
After years of threatening to curb outpatient healthcare costs, the Health Care Financing Administration has finally put some bite into its bark. Over the last five months, HCFA has published two rules in the Federal Register that could radically affect Medicare payments for both hospital-based and freestanding outpatient services in the U.S. Imaging centers could be hit particularly hard, with HCFA proposing a 24% cut in technical fee reimbursement for outpatient studies at nonhospital facilities.
Since the early 1990s, HCFA has explored the idea of managing outpatient reimbursements with a system similar to the diagnosis-related groups (DRGs) rate schedule it has used for inpatient services. This prospective payment methodology applies what the agency calls an ambulatory patient classification (APC) schedule to outpatient services.
When the agency implemented DRGs in 1983, it curtailed the freedom of hospitals to set the prices they charged for procedures like imaging exams. But since the system did not apply to outpatient procedures, hospitals began relocating many of those procedures to outpatient settings (SCAN 10/12/94). This shift sparked the growth of the imaging center market as many physicians sought to take advantage of the loophole.
The two new rules published this year may create added stress on an imaging center market that is already suffering from a bad case of declining reimbursement. On June 5, HCFA issued proposed rules stating that overall Medicare payments for diagnostic and radiation oncology will drop 13% over a four-year period. Independent medical imaging centers can expect a 24% reduction in their Medicare technical component reimbursement, according to the American College of Radiology, while physicians’ professional fees will be cut by 8% to 10%. When finalized, the rule will go into effect next January.
Since freestanding imaging centers rely on expensive capital equipment, they will be dramatically affected by the cuts. Many center companies, such as U.S. Diagnostic of West Palm Beach, FL, as well as radiology advocacy groups like the ACR and the National Coalition for Quality Diagnostic Imaging Services (NCQDIS), are doing what they can to protest HCFA’s proposals.
These imaging center industry proponents claim that the data HCFA used to determine the new reimbursement system were incomplete. According to industry watchers, HCFA’s research excluded cost data from nonphysician-owned facilities, the ones to be hardest hit by cuts.
Imaging center firms simply won’t be able to function profitably under the new rates, according to Leon Maraist, chief operating officer of USDL.
“HCFA went to the American Medical Association to do a survey, but instead of asking AMA to survey imaging centers, the agency asked AMA to survey radiology offices,” Maraist said. “The rates came out, and HCFA came up with $58 per hour to run a radiology practice. But when we hired the same company (AMA) hired, and asked them to do a survey on imaging centers, they came up with $402 an hour to run an imaging center.”
Some market observers warn that the cuts proposed by the June 5 rule could drastically reduce patients’ access to basic radiography: If independent centers are unable to survive, imaging costs could increase as competition thins and the market begins to shift to more economically viable imaging modalities such as MRI and CT.
Hospitals’ payments cut. On Sept. 8, HCFA proposed rules that would affect the other half of the outpatient equation: hospital-based imaging facilities. The notice establishes a fee schedule for the technical side of hospital-based imaging services, and hospitals will be reimbursed under the APC schedule. The rule also proposes eventual reductions in the amount patients copay for procedures. Instead of paying a fee percentage based on the hospital’s bill—which may be more than the Medicare reimbursement rate—patients will eventually be required to pay only a percentage of the set Medicare rate. HCFA expects the regulation to go into effect in 2000, and is accepting comments on the rule through Nov. 9.
As with the June 5 regulation, industry experts express dismay over the proposed payment rates, claiming that the new rates will prove financially insupportable to hospital-based outpatient centers. For example, the Sept. 8 rule states that the total allowance for an MRI exam will be $403. In initial stages of implementation, patients will be expected to pay $250, with Medicare picking up the remaining $153. Although HCFA expects these payment percentages to shift over time, so that Medicare will eventually pay 80% of the $403 and patients will pay 20%, the immediate effect of the schedule will be to place increased financial burden on hospitals, according to Dianne Millman, legal counsel for NCQDIS. And if hospitals decide they don’t want to charge patients more for imaging procedures to make up for operating cost deficits, they may choose to spin off their imaging services to freestanding centers in order to receive payment for services under the physician fee schedule.
Although increased hospital outsourcing may spur growth of independent imaging centers, the strategy is bound to backfire as these centers struggle with deep technical component cuts.
“In the short term, freestanding facilities may benefit from inadequate APC amounts paid to hospitals—they might get more business,” Millman said. “But in the long term, freestanding facilities better watch out, because what’s hitting the hospitals is going to hit them. It’s in their best interest to make sure everyone is paid adequately for these services.”
Overall, the two HCFA rules are part of a strategy to move Medicare’s payment base from a fee-for-service method to bundled reimbursements, according to Thomas Greeson, a healthcare attorney at Hazel & Thomas in Falls Church, VA.
“Medicare is clearly trying to move its payment base into methodologies where they will make global reimbursements rather than fee-for-service procedural reimbursements,” he said. “(The Sept. 8 rule) will encourage hospitals to be more efficient in their provision of outpatient services—they’re going to try to encourage the movement to freestanding facilities. But at the same time HCFA is encouraging that move, it’s also significantly reducing the amount of legitimate payments to freestanding facilities.”
