A proposal to increase the assumed equipment utilization rate, combined with other payment reductions, could result in 2010 rate cuts for imaging centers greater than those imposed by the Deficit Reduction Act of 2005, a new analysis concludes.

Providers would see payments for the technical component of CT fall 38% if CMS moves ahead with plans to increase the assumed utilization rate from 50% to 90% for the 2010 Medicare Physician Fee Schedule, according an analysis by 3d Health, a Chicago-based medical imaging consulting firm.

DRA rate cuts that were implemented in 2007 led to rate cuts of about 10% for CT, said Jon Geise, 3d Health principal consultant. Adoption of a 90% assumed utilization rate for MRI would reduce the technical component payment for that modality 31%, about the same as the cut mandated by the DRA.

An analysis performed by Geise considered the combined effect of higher assumed utilization rates proposed in legislation and regulations and pending relative value system modifications. These include new malpractice expense rates and the ongoing four-year implementation of a revised Medicare practice expense formula. He found the payment rates for the technical component of specific modalities would be cut as follows:

"The cuts would hurt any radiology group that owns an imaging center and operates it as an independent diagnostic testing facility," Geise said.

Hospitals that operate imaging centers as independent diagnostic testing facilities and nuclear cardiology and other in-office imaging services would also be hit hard by the rate reductions, he said.

Geise assumed a 90% utilization rate for imaging equipment under the practice expense component of the proposed 2010 Medicare Physician Fee Schedule. Unadjusted national Medicare rates were used. The 2010 conversion factor and proposed adjustments from the sustainable growth rate policy were not considered.

CMS has long assumed that imaging equipment is used 50% of the time a practice is open (25 hours per week), and spread the cost accordingly to develop the practice expense factor, according to the 3d Health analysis. CMS wants to change the utilization rate to 90% (45 hours per week) for equipment that costs more than $1 million. That change would spread the same practice expense costs across nearly twice as much capacity, Geise said. As a result, the practice expense factor for equipment costs and related reimbursement expenses would be reduced substantially.

Geise also examined how a proposal in the House of Representatives' healthcare reform bill would affect the technical component rate. HR 3200 would boost the assumed utilization rate to 75%. Geise's rough calculation indicates the technical payment for CT would fall 26% if the House proposal is adopted. Rates for MRI and nuclear cardiology would each be cut by 22%.

While the CT and MR rate cuts can be directly attributed to the proposed higher assumed utilization rate, the technical rate reductions for other modalities stem from a four-year program to phase in changes to the practice expense formula for imaging, he said.

In the 2010 update, CMS proposes several changes to the malpractice formula resulting in a shift in reimbursement that favors the professional component, according to the analysis. The new formula would allocate 96% of the malpractice expense payment to the professional fee and the remaining 4% to the technical component.

DRA reforms required Medicare to pay outpatient imaging providers the lower of two reimbursement rates through the fee schedule and the Hospital Outpatient Prospective Systems. That change has been widely blamed for imaging center closures and lower advanced imaging equipment sales in the past three years.